Bank failure, mark-to-market and the financial crisis Working paper

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Bank failure, mark-to-market and the financial crisis

I. Introduction
There are two sides on the balance sheet. The left side of the balance sheet has nothing right and the right side has nothing left. But they are equal to each other. So accounting-wise we are fine. Jacob Frenkel, VC of AIG In analysing the financial crisis, distinguished commentators have attributed part of the blame to the financial reporting regime in particular the use of fair values in reporting financial instruments in bank balance sheets. Anatole Kaletsky of the London Times, wrote: Much of the damage in the financial crisis was caused by forcing banks to use mark to market accounting rules (Times, 9 July (2009)). And Bill Janeway writes of The Accountants Doomesday Machine (Janeway 2009). Economic policy-makers have joined the condemnation. For example, European Commissioner McCreevy announced, I must add that there is growing concern among Finance Ministers at the perceived slowness of the International Accounting Standards Board in responding to the systemic crisis we have enduredmany Ministers have complained about what they see as an overacademic approach to standard setting, which many see as out of touch with todays reality1 And the communiqu from the April 2009 G20 summit joined the implicit criticism with a call (paragraph 15) on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning.
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http://www.iasplus.com/europe/0905mccreevy.pdf -1-

The principal accounting regulators (IASB and FASB) have not always enthusiastically introduced modifications to the fair value accounting regime. In October 2008, the IASB issued amendments to IAS 39 and IAS 7 to permit reclassifications of some financial instruments (so that they did not have to be recorded at current market value); and later that month issued guidance on measurement when markets become inactive, relaxing requirements to use current market prices (IASB 2008). This paper investigates the allegation that fair value accounting rules have contributed significantly to the recent financial crisis. It focuses on one particular channel for that contribution: the impact of fair value on the actual or potential failure of banks. Bank failure can play several roles in financial crisis. It brings deadweight bankruptcy costs incurred by courts, administrators and liquidators. It can lead to fire sales of assets, depressing asset valuations across markets. It can eliminate financial claims, and dent the confidence of counterparties that their claims on other banks will be honoured: spreads may widen, and, in the extreme, markets will freeze. And a heightened fear of failure may cause banks to scale back lending, curtailing potentially profitable economic activity. We trace the impact of fair values on insolvency conditions in law, exit conditions in economics, and (potentially lethal) violation of the capital adequacy conditions prescribed in prudential bank regulation. For evidence we consider the contribution of fair valuation rules to the actual or potential failure of banks, first building on the work of Shin (2009) - via case study of Northern Rock and Lehman Brothers pivotal failures in the crisis and, second, via the impact of changes in valuation rules on banks failure prospects, as reflected in stock prices.
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Bank failure can, of course, also play a benign role in enhancing the efficiency of the economic system. This is for the Darwinian reasons famously developed by Friedman (1953): elimination of the unfit. As the last Governor of the Bank of England emphasised (George (1993)): The possibility of failure is necessary to the health of the financial system, as it is to the efficiency of all other economic activity. And he cited Bagehot on moral hazard Any aid to a present bad bank is the surest mode of preventing the establishment of a future good bank. In the UK there were 31 bank failures in the period from the secondary banking crisis of 1973-6 until 2009; and in only four of these cases did the Bank of England consider that government support was warranted (SRM 2009, para 137). However, the literature identifies two principal circumstances where failure may not play this ultimately benign role. The law and economics literature explores cases where the legal criteria for failure do not correspond with the economic criteria for exit. Jackson (1982) and Webb (1991) analyse examples where this divergence leads, under a creditor-oriented legal system such as the UKs, to destructive creditor races and economically undesirable exit. The discussion in this paper focuses on whether fair values exacerbate or mitigate such problems. Our work is motivated by concerns that failure or increased probability of failure of one bank might damage the operations of others. In Governor Georges words, The issues for us are (a) what effect the failure of the institution would have on the system as a whole; and (b) what should be done to protect the system from contagion.
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Platin, Sapra and Shin (2005, 2008) investigate the financial stability implications of the use of market prices for the valuation of loans. The authors argue that although the emergence of surrogate prices via innovative derivatives markets for previously illiquid assets allows these assets to be marked to market, this may not be desirable due to the magnifying role of prices on financial intermediaries actions during financial crises. Changes in asset prices are found to be a major channel of contagion among financial institutions (Cifuentes, Ferrucci, and Shin, 2005); and particularly during financial crises these changes might predominantly be reflective of the overall liquidity of the market its ability to absorb large asset sales (Adrian and Shin, 2008; Gorton and Huang, 2004; Schnabel and Shin, 2004). Under these circumstances the liquidity shortages and distressed asset sales may lead to systemic failures in the banking system as highlighted in Diamond and Rajan (2005). At first sight, bank failure appears a straightforward event. But actually we distinguish four different criteria, or triggers, for bank failure: one economic, two legal, and one regulatory. This diversity of criteria has several implications for the efficiency of the failure mechanism, particularly in periods of financial crisis. First, none of the legal or regulatory criteria is usually aligned with the economic criterion for exit: viable banks may fail, whilst neither the legal nor the banking regulators mechanisms can be relied upon to eliminate a bank which is economically unfit. Second, the legal constraints which eliminate banks and other businesses depend on prevailing economic circumstances: other things equal, a bank may survive in deep and liquid markets yet fail in less active markets. Third, we show that fair values in the balance sheet are potentially
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critical in two of these four failure triggers (one legal and the regulatory), but irrelevant in two of them (the economic and the other legal one). We therefore explore whether actually they have been important in the current crisis. First, we analyse the financial statements of the two most notorious bank failures of the crisis, Northern Rock and Lehman Brothers. And we conclude that the failure of these banks cannot be attributed to fair value accounting. When measured at fair value, and without any of the relaxations of fair value rules that were subsequently introduced, neither bank was balance sheet insolvent usually the primary legal criterion for failure in the relevant jurisdictions; and nor did they break the regulators capital adequacy rules in relation to their balance sheets. Their demise is instead attributable to cash flow insolvency, a condition which is of little consequence in normal times when markets are deep and liquid. We turn then to other evidence which might reveal a pernicious role for fair values in the crisis. The paper first asks whether the original introduction of fair values induced reckless, pro-cyclical lending policies by banks. Although often argued in popular commentaries, our tests do not provide compelling evidence of such a behaviour pattern. On the contrary, banks average leverage actually declined when fair valuation of financial instruments was introduced in the early 1990s. We do find evidence for broker-dealers which supports the proposition that leverage is pro-cyclical: there is a strong positive relationship between the change in total assets and changes in leverage. But the evidence does not suggest that this pattern of behaviour is more pronounced under the fair value regime than it was under its historic cost predecessor.
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Furthermore, we attempt to formally test whether daily mark-to-market risk on sub-prime asset backed securities for banks as proxied by daily changes in the ABX.HE index increased the perceived risk of bankruptcy reflected in spreads on credit default swaps. We do not find evidence suggesting this in our tests, but instead find some explanatory power in the spread between LIBOR and Overnight Index Swaps (OIS), which measures counterparty risk for borrowings with very short maturities. Changes in the fair value regime offer another opportunity to assess the role of fair value in bank failure. The accounting regulators have during the crisis twice introduced relaxation in the fair value regime. First we consider the amendment in 2008 of IAS 39 allowing banks to re-classify certain financial instruments from the trading category (which requires continuous marking to market) to the loan category (which is measured at cost). We reason that, even though it does not affect their underlying solvency or viability, this partial suspension of fair value accounting may for some banks have reduced the probability of regulatory failure with all its attendant costs; and such a benefit would show in share prices. At first sight this benefit for the banking sectors market valuation does seem to have accompanied the IASB announcement. A second relaxation of the fair value regime introduced by IASB and FASB concerns the fair values to be used where the markets in which the relevant instruments are to be priced have become very thin. This relaxation responds to the fear of externalities and vicious circles, where one banks distress sale of an instrument in an illiquid market determines the prices at which equivalent or comparable instruments are recorded for legal or regulatory purposes in other banks balance sheets. To assess this relaxation we measure share price changes in
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the banking sector again as an indicator of changed failure risk in response to a notorious example of a financial instrument being sold in large quantity at a massive discount Merrill Lynchs sale of its ABS CDO portfolio with a face value of $30.6bn at a price of $6.7bn in the summer of 2008. Despite a negative effect on share prices for the banking sector overall at time of the announcement, the results do not indicate that the market expected this distress sale to have a long-term adverse impact on other banks balance sheets. Although, the results presented in this paper highlight the need for further investigation, nevertheless, some relevant conclusions can already be drawn from this analysis. Balance sheet valuations can become decisive for two failure conditions: Balance sheet insolvency and regulatory failure. Our analysis shows that neither of the two contributed to prominent bank failures during the crisis, but that rather cash flow insolvency, which is independent of the prevailing accounting regime, becomes binding during downward cycles. The anecdotal evidence is augmented by empirical test that show that liquidity risk, not market risk, is reflected in default expectations for banks. Secondly, it appears that procyclicality in bank balance sheets is predominantly introduced through risk-based capital adequacy rules. And finally, prima facie evidence does not suggest of negative externalities of market transactions in thin markets. The remainder of the paper is structured as follows. In section II we introduce four conditions of failure and compare these with each other. Section III presents the two prominent failure cases during the recent financial crisis Northern Rock and Lehman Brothers and introduces an additional failure condition which becomes effective when markets are in distress. Section IV discusses the impact
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of mark-to-market accounting on the failure conditions and in section V we conduct some initial empirical tests. Recognising that some of our results are still tentative, section VI concludes with implications of our analysis for fair value accounting.

II. What triggers bank failure?2

1. One legal criterion for company failure - balance sheet insolvency (BSI) One legal criterion for company failure balance sheet insolvency - might be written: A<L Where A is the value of the firms assets (we leave the valuation basis undefined at this stage: this is a critical issue later in the paper). L is the value of the firms liabilities (debts). Thus the US bankruptcy code of 1978 states: Insolvent means, in relation to an entity, that the sum of such entitys debts is greater than all of such entitys property, at a fair valuation3 And one component of the UK Insolvency Act (1986, 2.123) has a similar balance sheet test: A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the companys assets is less than the amount of its liabilities. (i)
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This section is developed from Meeks and Meeks (2009). We are particularly grateful to Len Sealy for lucid explanations of the definition of insolvency in different jurisdictions. -8-

In general the courts will adopt generally accepted accounting practice in valuing the assets and liabilities in this calculation; so the accounting standard setters play a powerful role in this process: in a falling market a bank might be deemed solvent if its assets are valued at cost, but insolvent if they are recorded at a fair value based on current market price. 2. The economic criterion for company failure (EF) The economic criterion for company failure (EF) can be written as: Apv < Anrv Where Apv is the present discounted value of net future cash flows generated by the companys assets if they are retained in their existing use Anrv is the net realisable value of the assets, if they are sold for an alternative use. This is simply saying that economic efficiency would be enhanced if a company discontinued once its assets could yield higher returns in an alternative use. It does not depend on accounting choices whether to record assets at, say, fair value or historic cost. Instead it involves comparing two sets of potential cash flows4. Nor does it take account of the companys legal insolvency: no comparison is made between assets and liabilities it may be economically desirable for a business to continue even where it fails on legal grounds.5 (ii)
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These correspond, of course, to two of the ways of measuring fair value under current accounting standards: mark to model uses discounted cash flows; and mark to market uses realisable value. Jackson (1982) and Webb (1991) analyse cases where, on legal grounds, companies are liable to fail (A<L: they are insolvent); but on economic grounds the assets would best remain employed in the present business: the business is worth more as a going concern than if it is liquidated. Under a creditor-oriented legal system (such as the UKs), the incentive system may induce destructive creditor races, and economically undesirable exit. On the other hand there are firms which, on economic grounds should be disbanded (Apv<Anrv), but are not compelled to by the legal system. Such companies are the focus of Jensens (1986) analysis of cash-rich firms free to squander stockholders money because of agency problems; and of his prescription of raising their leverage, thus compelling them to return some cash flow to wealth-holders every year in the form of interest payments: unless -9-

3. Regulatory failure (RF) In addition to the economic and legal mechanisms of failure financial institutions are subject to regulatory tests whether they hold enough capital against potential claims from their creditors. To prevent the cost of government intervention in case of bank failures and the associated transfer of taxpayers funds to bank creditors, bank regulators impose binding capital constraints for financial institutions which limit their lending activities and ultimately the amount of leverage (Thakor, 1996; Berger et al., 1995). Regulatory failure can be expressed as:
q K < A

(iii) Where K = Regulatory Capital q = leverage multiplier A = Assets Although a breach of the minimum capital requirements does not simultaneously and immediately constitute legal or economic insolvency, it is usually, however, accompanied by reprimanding and intervening actions by the regulator on the banks financial activities.6 Depending on the level of undercapitalization the management of the bank is obliged to take prompt corrective actions in order to
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their performance improves they will ultimately be driven into the insolvency net, with the prospect of law intervening to part executives from their under-performing assets. A related case analysed by Stiglitz (1972) (see also White (1992)) has managers continuing in business under the protection of Chapter 11, gambling with stockholders money, even though liquidation is warranted on economic grounds (see the analysis of Eastern Airlines by Weiss and Wruck (1998)). In addition to minimum capital requirements financial institutions are subject to a panoply of regulatory safety measures such as deposit insurance, access to liquidity pools (e.g. discount window), and credit guarantees. - 10 -

avoid being placed under government control or even receivership (Jones and King, 1995).7 Minimum capital ratios and therefore regulatory failure can be measured in different ways depending on definitions of regulatory capital and assets. Figure 1 illustrates the composition of regulatory capital most commonly used. Regulatory capital is defined more broadly compared to traditional measures of capital (assets minus liabilities); it comprises capital which is able to absorb losses and is junior to claims from senior creditors and deposit insurers, i.e. the government (Berger, 1995). It includes equity capital, hybrid capital such as preference shares and more complex capital innovations as well as subordinated debt and general reserves capital that is considered to be perpetual, junior and able to reduce moral hazard incentives. It is divided according to its quality into Tier 1 and Tier 2 capital. The measurement of assets in capital ratios can vary from un-weighted, such as for instance in the crude leverage ratio as one of the measures used by the FDIC in the US, to a static risk-weighted version, such as under the Basel 1 regime, to a dynamic risk-weighted variation such as the one implemented under Basel 2.8
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Measures to pressure potentially distressed banks to increase capital ratios may include the limitation of asset growth and dividend payouts, asset disposals or rights issues (Buser et al., 1981). These minimum capital requirement rules were developed in 1988 and adopted into domestic regulation worldwide in 1992 (BIS, 1988). In response to shortcomings in the initial Basel framework criticised by practitioners and academics alike, the Basel Committee issued its revised capital adequacy framework in 2004, commonly known as Basel 2 (BIS, 2004). It is argued in the literature that a bank, which is subject to a higher equity-to-asset ratio required by regulators than would be required by the market, might increase its risk and hence also its probability of failure (Herring and Vankudre, 1987; Davies and McManus, 1991). Under a regime such as Basel 1 the increase in risk is not necessarily penalised with higher capital requirements since the risk weights are static and set by the Basel Committee. Consequently, the main criticism of Basel 1 focused on the computation of risk weights, which was said to be too rigid and did not take into account differences in the credit ratings of counterparties. A second major innovation in the Basel rules required financial firms to make capital provisions for operational risk, which was neglected in the previous framework. The minimum capital ratio requirement remained unchanged as did the composition of regulatory capital in the numerator of this ratio. Only the calculation of risk-weighted assets in the denominator was revised in so far that it now includes a measure for operational risk and modifies the - 11 -

According to the Federal Deposit Insurance Corporation Improvement Act (FDICIA, 1991) a bank is forced into receivership if its tier 1 equity ratio to total (un-weighted) assets falls below 2%. However, long before this threshold is breached several trigger points result in mandatory and discretionary action to be taken in order to avoid failure. Only banks which satisfy a tier 1 to total asset ratio of at least 5% and several risk-weighted asset ratio constraints, are deemed well capitalised and do not require prompt corrective action. In addition to the crude leverage constraint of the FDICIA, in the Basel Accord national regulators agreed on a risk-based capital requirements. The amount of regulatory capital to be held by financial institutions has to be set by regulators in relation to the risk (and hence possible losses) it should be able to absorb. A risk-based capital ratio allows the minimum capital held as protection against bankruptcy to adjust to the variability in net worth of the bank (Bradley et al., 1991; Avery and Berger, 1991). The Basel capital adequacy rules require all banks to hold a minimum of 8% of total (regulatory) capital to risk-weighted assets. The risk weights are designed to take into account the banks exposure to the credit risk of the counterparty within its banking book activities, i.e. traditional banking activities such as borrowing and lending. Banks trading activities require additional capital provisions for exposure to market risk usually based on more complex techniques such as Value-at-Risk calculations. Compared with the legal definition of failure in II.2.a, balance sheet insolvency (A<L), the regulatory failure constraints are breached even before a financial firm
calculation of provisions for credit risk with higher dependence on credit ratings and on the banks internal models. The Basel framework is again under a major overhaul in the aftermath of the financial crisis 2007-2009. - 12 -

reaches negative equity. Assuming - for simplicity reasons but without loss of generality - that no subordinated debt or hybrid capital is held by the financial firm (such that K = A L), the regulatory failure conditions can be expressed as:
1 A < L + ( A) A < L + W q

(iv) Since W is always positive it is obvious that the regulatory conditions are breached before the financial firm reaches legal insolvency based on BSI. These more stringent failure conditions for financial firms are justified by the regulators with the argument of the systemic importance of financial companies for the economic system and for confidence in capital markets. However, Miller (1995) and Kane (1995) voice the criticism that regulatory capital requirements are inefficient means to limit the risk exposure of banks and advocate market mechanisms instead.

III. Bank failure during the current financial crisis

1. Northern Rock Table 1 provides excerpts from the balance sheet of Northern Rock for December 2007, after the bank run, but before nationalisation. It is clear that: Northern Rock was not balance sheet insolvent: assets exceeded liabilities and the margin between the two was only slightly below the corresponding value a year earlier The bank comfortably exceeded the tier 1 and overall capital ratios stipulated by Basel 2 So it failed neither on the legal, balance sheet test, nor on the capital adequacy test of Basel 2. Northern Rock complied fully with the fair value requirements of the
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accounting regulations; and these measurements predate the relaxation of fair value accounting rules in 2008. Moreover, the auditors did not make a going concern qualification for these accounts. This assessment is confirmed by a High Court Judgement in 2009 (SRM and The Commissioners of Her Majestys Treasury), paragraph 82(b): At all relevant times the assets of Northern Rock exceeded its liabilities. It was solvent on a balance sheet basis. 2. Lehman Brothers According to financial data from the balance sheet of Lehman Brothers for the second quarter ending August 31, 2008 two weeks before the company declared bankruptcy in September, Lehman Brothers was neither balance sheet insolvent nor did it fail the appropriate capital adequacy tests. Similar to the Northern Rock case, it again becomes obvious that: Lehman Brothers was not balance sheet insolvent: assets exceeded liabilities by $26bn which was almost 10% more compared to the previous quarter and 20% higher than the corresponding value a year earlier. The bank had a market capitalization of more than $20bn. The bank exceeded the minimum net capital requirements for brokerdealers under SEC rules by $2.1bn. In addition, according to Bloomberg the company had already announced total write-downs of $13.8bn and at the same time raised $13.9bn of equity in 2008. 3. A second legal criterion: cash flow insolvency (CFI)
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Why then did Northern Rock and Lehman Brothers fail if they were neither legally insolvent, on the balance sheet test, nor in breach of the capital adequacy rules of the banking regulators? One perspective on this comes from the legal criteria for insolvency in some jurisdictions outside the US. For example, at the opposite end of the spectrum from the US is Australia, under whose law the only test of insolvency is (Corporations Law (Aust), s95A): (1) A person is solvent if, and only if, the person is able to pay all the persons debts, as and when they fall due and payable. (2) A person who is not solvent is insolvent. This is a cash flow, rather than a balance sheet test. It asks not whether liabilities exceed assets, as in the US, but whether cash flows are sufficient to meet the payments which the company is required to make. UK law appears to be a hybrid of US and Australian rules: it includes a cash flow test, one component of which is (Insolvency Act 1986, s 123): 1. {c} the company is unable to pay its debts as they fall due But it also includes a balance sheet test: 2. A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the companys assets is less than the amount of its liabilities The cash flow test might be written: CI(t) < CO(t) Where CI(t) = cash in (initial liquid assets, plus cash receipts)during period t (ix)
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CO(t) = immediate obligations to pay, plus fresh obligations to pay in period t 4. Comparing BSI and CFI Does this mean that balance sheet insolvency is irrelevant in these other jurisdictions? We would argue that if markets are deep and liquid BSI is the binding condition even if the law is framed in terms of cash flow insolvency, and that it is CFI which is irrelevant. Suppose an Australian company (in that cash flow bankruptcy regime) has encountered a cash flow difficulty and does not have cash in the bank with which to pay a debt due and payable. What happens next? Managers (and equity-holders) have strong incentives to avoid the legal process of failure, since it entails bankruptcy costs (elaborated, for example, in Altman (1984), Andrade and Kaplan (1998)), and would typically deprive equity-holders of their wealth, and managers of their control and their income. They can therefore be expected to seek cash with which to meet the debt. They could do this by selling off any non-cash assets which are not required for operations (surplus inventories, real estate or equipment). Or, if there were no such surplus assets, they could borrow against the assets they wished to continue operating. For example, in the case of real estate they could construct a mortgage or a sale and lease back arrangement; in the case of inventories they could follow common practice and use these as collateral for short-term bank borrowing; and in the case of receivables, they could adopt factoring to turn them into cash ahead of the due payment day. What is the limit on such borrowing? For a credit-worthy company operating in deep and liquid capital markets, the limit will be set by its potential collateral. In
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other words, the question will be: does it have more assets than liabilities? Cash flow insolvency will only matter, therefore, if it is accompanied by balance sheet insolvency: A < L. Otherwise the rational manager will solve the problem of cash flow insolvency with some form of re-financing package. This is the analogue of the standard Modigliani-Miller proposition that stockholders will, in certain circumstances be indifferent between dividends cash flows and retained earnings. This is because, for listed companies, retained earnings, which are equity can readily be transformed into cash via financial markets: stockholders can declare their own dividend by selling some stock. Similarly, in our context, with deep and liquid financial markets, the executive faced with cash flow insolvency can sell assets or raise finance against collateral, provided there is positive equity balance sheet solvency. This is the conclusion for normal times, when markets are orderly. However, in Northern Rocks case, on August 9, 2007, the short-term market and interbank lending all but froze (Shin (2009), p.102. NR was unable to renew its short- and medium-term paper: as Shins analysis shows, by the December 2007 balance sheet, the funding from this wholesale market had shrunk to 11.4 billion, from 26.7 billion a year earlier. When news leaked of the banks request to the central bank for substitute funding, in the following month, the famous run developed: the retail deposits market also became inaccessible for Northern Rock, and these liabilities fell by a similar sum to the shrinkage of wholesale sources - some 14 billion over the year to December 2007.
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Similar to the Northern Rock case, Lehman Brothers became victim of the capital and term structure of its balance sheet. Lehman was extremely reliant on shortterm funding and high levels of leverage (Zingales, 2008). As opposed to commercial banks, Lehman Brothers as a broker-dealer had no access to retail deposits and only limited access to liquidity from the Federal Reserve Bank but relied heavily on the repo market. In the immediate days before the bankruptcy filing Lehman faced collateral calls on its secured loans and was denied access to wholesale funds. Even though Lehmans assets exceeded its liabilities based on fair values, the collateral value of assets does not solely depend on their fair value, but on the value the lender in the wholesale market assigns to them. Due to the panic in the market, lenders generally demanded higher haircuts - in the extreme case of up to 100 percent for mortgage related assets, i.e. these assets were not accepted as collateral at all any more (Gorton and Metrick, 2009). Liquidity previously accessible in abundance froze almost instantaneously as haircuts on assets used as collateral became prohibitive and suitable collateral became scarce (Morris and Shin, 2008; Brunnermeier, 2009).9 This comparison and the cases of Northern Rock and Lehman Brothers highlight that bank failures might arise despite capital adequacy and balance sheet solvency due to sudden shocks to liquidity positions (see also Alexander, 2009, p.81; Alexander et al., 2007).
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According to a Bloomberg report secured financing fell out of reach because of the devaluation of assets securing the loans, forcing Lehman to deplete its cash to continue trading, said lawyer Shai Waisman of Weil Gotshal & Manges in a Sept. 16 court hearing. This began the stranglehold on Lehman, Waisman said. [] JPMorgan had more than $17 billion of Lehman's cash and securities three days before the investment bank filed the biggest bankruptcy in history on Sept. 15, the creditors committee said in a filing Oct. 2 in bankruptcy court in Manhattan. Denying Lehman access to the assets on Sept. 12, the bank froze Lehman's account, the creditors claimed. (Sandler and St.Onge, Bloomberg October 4, 2008, retrieved at http://www.bloomberg.com/apps/news?sid=aOBEg1wAitck&pid=20601109 ) - 18 -

IV. Mark-to-market accounting and the different concepts of bank failure

1. Mark-to-market and economic failure The notion of marking to market under a fair value accounting regime is based on the relevance and reliability of market prices in approximating economic or fundamental value (Whittington 2008). This concept relies on exit prices to reflect the equilibrium state of demand and supply (Chambers, 1966).10 Measurement of the economic failure condition is therefore inherently connected to the notion of fair value. In perfect and complete markets prices are readily available for all assets and the economic failure condition can easily be assessed by comparing observable exit prices (net realizable values) with the value in use of all assets of a business.11 However, when markets are less than perfect and are incomplete the exit price might no longer serve as a good approximation for economic value. Yet, this does not necessarily alter decisions for going concerns based on the economic failure condition. If, for instance, during financial crises markets become illiquid and prices reflect investors demand for liquidity rather than expected future cash flows (Allen and Carletti, 2008; Plantin et al., 2008), realizable values will fall substantially below values in use as market participants will require a premium to give up liquidity and hold the illiquid asset. Consequently, the economic failure condition will not be breached and assets will remain in their current use.
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Conceptually, also entry market prices could be used as objectively verifiable representations of fair value which are founded on the notion of replacement costs rather than realisable values (Revsine, 1973) In a world under certainty this would become obsolete since all market participants would be knowledgeable about ex post realisations already ex ante and hence net realisable value would equal value in use. - 19 -

Marking assets to market does therefore not influence rational decisions under pure economic failure conditions. 2. Mark-to-market and legal failure In the previous section we introduced two legal definitions of failure, BSI and CFI and concluded that in functioning markets CFI is irrelevant since assets can be turned into cash by pledging them as collateral as long as the entity is balance sheet solvent, i.e. the value of the assets exceeds the value of liabilities. Under these legal conditions the valuation of assets becomes crucial. When assets are continuously marked to market creditors are able to verify asset valuations instantaneously. In an environment of falling asset prices debtors will receive collateral calls asking them to pledge a larger volume of assets for the same value of liabilities. Again, as long as A exceeds L even on a mark to market basis the debtor is able to continue with ordinary business although it will prove to be more costly. Ceteris paribus if asset prices drop fast and deep enough the value of L will exceed A and the business will be declared insolvent. Under a historical cost regime the drop in asset values (and hence insolvency) will only feed through to the balance sheet if asset prices remain impaired for a sustained period of time and the business is not able to refinance itself through earnings during this period. Consequently, the legal failure condition may not be breached under historical cost accounting as opposed to under a fair value regime.12
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This was the case during the US Savings and Loans Crisis in the 1980s until the early 1990s. Although total liabilities of the savings and loans institutions exceeded their total assets by USD 118bn on a fair value basis, effectively leaving most institutions insolvent, this deficit did not appear in their balance sheets, which were based on historical costs. Simultaneously, no mark-to-market losses from rising interest rates were recognised in income although the funding costs of these institutions had surpassed their mortgage rates (Enria et al. 2004). At that time the accounting regime concealed inefficiencies in the savings and loans institutions which was said to have contributed to the length and severity of the crisis to the detriment of stakeholders and taxpayers (Michael 2004; Kane 1987 and 1989). Paradoxically, after the - 20 -

However, assuming prices come under enough pressure (which by definition is a feature of financial crises), irrespective of balance sheet valuations creditors will demand more collateral since expectations of defaults have increased. Ad extremum, creditors may not be willing to hold non-cash collateral in anticipation that the value of these assets will drop further (even though they are still held at cost on the balance sheets). The cash flow constraint becomes binding. As liquidity dries up in markets creditors demand liquid assets or charge higher premia to hold illiquid assets as collateral, forcing debtors to turn assets into cash with a substantial discount (Gorton and Metrick 2009). Short-term funding in wholesale markets seizes. This may result in pro-cyclical adjustments of balance sheets with negative feedback effects as explained in Adrian and Shin (2009). If creditors anticipate each others moves, all will demand cash almost simultaneously as everyone tries to pre-empt the others move even though collectively it might prove beneficial to forbear (Epstein and Henderson 2009). Now not balance sheet values, but cash flows become crucial. Hence, CFI overrides BSI and balance sheet valuations become irrelevant. These circumstances are tantamount to a bank run and caused the demise of Northern Rock and Lehman Brothers as explained above.13 3. Mark-to-market and regulatory failure
13

S&L crisis fair value accounting for financial institutions was advocated as remedy for such a prolonged credit crisis. Although we argue here that the accounting convention does not change the fundamental value of the assets and that investors and creditors see through mere accounting numbers, fair value accounting might introduce feedback loops when market prices are used as inputs for valuation models. Once mark downs occur under mark-to-market accounting these might amplify downward movements in asset prices if they artificially induce balance sheet deleveraging. We argue that these feedback effects do not automatically occur due to economic or legal insolvency conditions as explained above, but rather are introduced through regulatory channels we will investigate in the next section. - 21 -

So far we have illustrated that legal failure might be triggered even when the business should continue on economic grounds and that under certain extreme market conditions cash flow insolvency becomes the decisive factor in failure irrespective of the prevailing accounting regime. When it comes to regulatory failure, however, the accounting regime plays a significant role in influencing the behaviour of market participants. If balance sheet variables are marked to market, vicious circles can develop in falling markets as banks seek to comply with capital adequacy regulation and shrink their balance sheets to avert failure: this can intensify the cycle. Also, externalities might arise when, in thin markets banks decide to trade assets or liabilities: Due to the dual role of market prices under fair value accounting one banks market transaction might affect the valuations in another banks balance sheet. For illustration purposes consider a bank with equity of 10 and a 10% regulatory capital ratio under the three different regulatory systems described above. Assume that under each regime the bank is required to hold a minimum of 8% equity to regulatory capital. Further assume that the average risk weights of the assets under the risk based regimes Basel 1 and Basel 2 are 50%. Also assume all loans are marked to market and due to a deterioration of economic conditions are worth only 97 cents on the dollar. First, consider the change in the banks balance sheet under the regime with the crude leverage constraint as under the FDICIA. Initially, the bank made loans valued 100 (10 equity with a capital ratio of 10%). These loans are marked down 3% and are now worth 97 since equity is reduced by 3, the bank now has a capital ratio of (10-3)/0.97*100=7.2%. If no capital can be raised the bank has to reduce
- 22 -

its balance sheet by 97-(7/0.08)=9.5 to reach the minimum capital ratio requirement of 8%. Now consider the case for a bank operating under Basel I. Since the average risk weight of assets is 50% the bank can now make 200 in loans in order to have a 10% capital ratio to risk-weighted assets. After a 3% write-down the assets are now worth 194 and equity is reduced by 6. The new risk-weighted capital ratio is now only (10-6)/(0.5*194)=4.1%. Hence the bank has to reduce its balance sheet by 194-(4/0.5*0.08)=94 to be able to maintain a minimum risk-weighted capital ratio of 8%. Recall that Basel II differs from Basel I in as much that the risk-weights are not static but depend on (external or internal) credit ratings of the loans. It is likely that due to the deterioration of the economic conditions default probabilities increase such that the risk-weights under dynamic risk-based capital rules such as Basel II increase. Assume for simplicity that average risk weights have increased from 0.5 to 0.6. Although the bank has incurred the same loss of 6 and holds loans worth 194, it now must raise 194-(4/0.6*0.08)=110.7, i.e. almost 20% more than under Basel I. Laux and Leuz (2010) argue that fair value changes of the majority of debt securities do not affect regulatory capital since these at the time of the financial crisis - fell under the held-to-maturity or available-for-sale category for which temporary fair value losses were not recognized in income and Tier 1 capital. And of course, if the loans had not to be marked to market initially no write off would be necessary at all (although this might change if the loans are deemed impaired in the long-term).
- 23 -

This simple example illustrates that the main pro-cyclical downward pressure results from the risk-based regulatory regime (Basel 1) which is further magnified in the dynamic version (Basel 2). Compared to the crude leverage constraint regime, almost ten times worth more loans have to be sold under risk-based capital adequacy rules. Consequently, Laux and Leuz (2009) argue that measures against contagion and procyclicality in bank balance sheets should be implemented by changes in prudential regulation rather than changes in accounting standards. On the other hand, Platin et al (2008) argue that mark-tomarket accounting is inefficient for non-standardised illiquid and long-term assets such as loans. However, the current accounting regime acknowledges this since loans are predominantly required to be measured at amortised cost on bank balance sheets. Only if these assets are originated by the bank to be securitized into credit derivatives they are measured at fair value through the profit and loss account. Equally, investments in securitized bonds of underlying loans are also marked to market. Paradoxically under Basel 2 financial firms could expect capital relief when investing in securitized bonds rather than the underlying assets themselves. Simultaneously, the lower capital charge for increasingly inherently riskier assets further fuelled the boom and inflated bank balance sheets. For instance, triple-A rated securities issued from securitizations of assets individually rated lower than triple-A attracted a zero risk weighting and hence a zero capital charge according to capital adequacy rules. Equally, securities insured by one of the major monoline insurers also presumably deserved a triple-A rating. That the rating attached to these structures underestimated their systematic risk becomes apparent in Coval et al. (2008). Once the securitization tranches and monoline insurers were downgraded, banks not only had to incur losses due to write-downs but simultaneously had to hold more capital against these assets since their risk
- 24 -

weighting was not zero anymore. The risk-based capital adequacy rules reinforced strains on equity capital beyond the losses incurred due to mark-to-market accounting. 4. Summary Table 2 compares the four failure triggers we have identified. We conclude that: The use of fair value in a falling market could be sufficient to tip into balance sheet insolvency, our first legal criterion, a bank which was solvent on a traditional, historic cost accounting basis Fair value could likewise be sufficient to make a bank breach its capital adequacy ratios and suffer regulatory failure under a regime such as Basel 2 However, neither balance sheet insolvency nor regulatory failure is necessary for a bank to fail, as we have seen with Northern Rock and Lehman Brothers: failure may be precipitated by cash flow insolvency when markets are not deep and liquid None of the legal or regulatory criteria coincide except by unlikely chance with the condition for economically efficient exit. These failure conditions may drive out of existence a bank which should continue on economic grounds; and may allow to survive a bank which should exit.

V. Empirical analysis
- 25 -

1. Sample and descriptive analysis

We collect quarterly balance sheet data for commercial banks (SIC 6020), savings institutions (SIC 6035), and broker-dealers (SIC 6211) from the COMPUSTAT North America and Bank files for the period Q1, 1980 until Q4, 2008. Table 3 summarizes the number of firms in each of the three sectors over the years. While there are 145 commercial banks, 5 savings institutions and 12 broker dealers in the sample in 1980 this number grows to 485, 143 and 53 in 2008, respectively. There is a large jump in data coverage from 1994 onwards. The sample contains US and international institutions listed on a US stock exchange. Summary statistics for the sample are given in Table 4. The sample includes 1460 financial institutions. The mean market value in the sample is $1.8bn and on average these firms hold assets of $13.8bn and liabilities of $12.8bn. The largest firm has assets in excess of $2 trillion. The mean Tier 1 capital ratio in the sample is 11% and these institutions are on average leveraged 12 times with a maximum of almost 50 times. 2. An investigation into the role of leverage of financial institutions Figure 2 graphs the mean leverage ratio for all financial institutions in the sample with assets larger than $10bn from 1980-2008. Panel A depicts a steady fall in leverage ratios for the entire sample over the years with a drastic fall beginning in the 1990s. From the mid 1990s the financial institutions in our sample hold around 12 times the value of assets to equity on their balance sheets.14 We find a similar pattern when we restrict the sample to only those banks that are active during the entire sample period (results not reported); hence it is unlikely that the reduction in leverage is due to the increased data coverage from 1994 onwards
14

This pattern remains when we include all financial institutions in the sample without any size restriction. - 26 -

shown in Table 3. This pattern largely remains when separating the sample into commercial banks, savings institutions and broker-dealers (Graphs B-D), although it seems less drastic and rapid for broker-dealers. The decrease in leverage stands against the common belief that there was increasing and excessive leverage during the boom years of the mid 1990s until recently. Figure 3 disaggregates leverage into its components, common shareholder equity and total assets and depicts their trend from 1980 until 2008. The decrease in leverage of the entire sample can be traced back to a more rapid increase in average common equity compared to total assets. When separating the sample into its sectors again, however, broker-dealers and savings institutions stand out. After a rapid fall in equity during the savings and loans crisis, saving institutions massively reduced their balance sheet. Brokerdealers on the other hand experienced a steady expansion of assets and equity. Interestingly, the fall in average leverage ratios coincides with the emergence of fair value accounting as the pre-eminent accounting regime, particularly for financial institutions, in the mid 1990s. The leverage measure, however, only includes balance sheet items. Off-balance sheet investment structures and OTC derivatives, which have become increasingly popular from the mid 1990s, introduced a source of leverage which is not captured here. In the spirit of Adrian and Shin (2009) Figure 4 plots quarterly asset growth over leverage growth for the sub-periods 1980-1994 and 1995-2008 for the sub-sample of commercial banks, savings institutions and broker-dealers. Consistent with Adrian and Shin (2009) the figure shows signs of pro-cyclical leverage for brokerdealers as indicated by the strong positive relationship between changes in total assets and changes in leverage. Similarly, the graphs for commercial banks somewhat indicates that commercial banks target a fixed leverage ratio. However,
- 27 -

contrary to Adrian and Shins (2009) supposition that this phenomenon is the main behavioural feature of banks under a fair value accounting regime, there is no indication of differences in this pattern in the period before 1995, under predominantly historical cost accounting, and after. To investigate this further we regress quarterly leverage growth on asset growth and a series of dummy and interaction variables capturing the different accounting environments and types of institutions. We estimate the following model in a pooled regression over the entire sample period:
2

LEV = 1 +

D (
i i=1 4+ i

TA + ACC (

TA) +

6 +i TA + ACC ( 8+i + 10 +i TA) ) , where LEV is the growth in quarterly leverage ratio; TA is the quarter on quarter growth in total assets; ACC is a dummy variable representing the prevalent accounting regime and equal to 1 for the fiscal years after 1994 when fair value accounting became predominant for financial institutions in the US15 and zero otherwise; D1 and D2 are binary variables that take the values 1 if the financial institutions are broker dealers and savings institutions, respectively, and zero otherwise. We also estimate abbreviated versions of this model. If fair value accounting introduced pro-cyclical leverage the regression coefficients on ACC and on the interaction terms with ACC should be positive and significant. The regression results are summarized in Table 5. The evidence does not suggest significantly more aggressive pro-cyclical leverage with fair value accounting as

15

In the US fair value accounting for financial assets was introduced with SFAS 107 Disclosures about fair value of financial instruments which became effective in 1993 and SFAS 115 Accounting for certain investments in debt and equity securities which became effective in 1994. The International Accounting Standards Board followed its US counterpart swiftly with IAS 32 and IAS 39 in the following years. - 28 -

compared to during a predominantly historical cost accounting regime; rather the empirical evidence points in the opposite direction. Columns (1)-(4) report the estimated coefficients and t statistics for the separate models. The results in column (1) show positive and statistically significant coefficients for asset growth (0.62) and the dummy for the fair value accounting regime (0.004) suggesting the existence of pro-cyclical leverage (the marginal effect of asset growth on leverage growth is positive) and higher leverage growth during the years when fair value accounting became dominant. However, the interaction term (-0.188, t-stat=-6.95) suggests that the marginal effect of asset growth was smaller in the years with fair value accounting compared to before, indicating that pro-cyclical leverage in financial institutions is not encouraged by a fair value accounting regime but rather reduced. The results also indicate that leverage growth was generally higher for savings institutions compared to commercial banks and broker dealers as depicted by the significantly positive coefficient on the dummy variable D2 . The results of the extended models in columns (2)-(4) are consistent with the results in column (1) and the evidence further suggests that the diminished effect of pro-cyclical leverage in the fair value accounting environment is particularly evident for broker dealers and commercial banks (by the statistically significant negative coefficient on the interaction term TA ACC and the insignificant coefficient when additionally interacted with D1 ); whereas there are indications that for savings institutions pro-cyclical leverage was higher post 1994 (as shown with the significantly positive coefficient on D2 TA ACC ). The regression results presented here stand in contrast to the widely expressed criticism that fair value accounting introduced pro-cyclical leverage in bank balance sheets and hence intensifies boom and bust cycles. However, the use of
- 29 -

fair values might influence investors perception of bankruptcy risk for financial institutions and cause externalities through feedback loops when markets are thin; both of which are the focus of the following analyses. 3. What determines default expectations for financial institutions during the crisis? Our arguments presented in section III and IV are closely related to Gorton and Metricks (2009) explanations on the panic in the repo market during the height of the financial crisis. The anecdotal evidence supplemented by the two case studies of Northern Rock and Lehman Brothers, however, requires some additional formal tests. In this section we attempt to assess the impact of various market proxies on the perceived bankruptcy likelihood of financial institutions. We focus on the spreads of credit default swaps for banks as a proxy for the default risk of banks as perceived by the market. We use the daily average spread on a basket of 125 global financial institutions for which this data was provided by Markit and available via Bloomberg. We regress the daily change in average CDS spreads on a set of variables that proxy different risks. As a proxy for the risk of mark-tomarket losses on asset-backed securities we use the on-the-run ABX.HE index which reflects the price of 20 equally-weighted residential mortgage-backed securities (RMBS).16 Specifically, we use the price for the sub-index of AAA rated tranches of these securities. These are representative of the most secure
16

More precisely the ABX.HE references subprime RMBS and equivalent sub-indices on rated tranches of RMBS from AAA to BBB-. The index is re-calculated on a new basket of RMBS every six months and rolled over based on pre-specified rules. In this analysis we use prices of the first vintage 2006-1. The ABX.HE index is employed as a proxy due to the fact that it is an investable index which is often used by financial institutions as a hedge against exposure to mortgage-backed securities as well as for indicative valuation purposes. However, the index is a fairly young invention launched by broker-dealers in 2006 who provide Markit, the index provider, with daily valuations of the index constituents. ABX.HE prices were obtained from LehmanLive, a financial research database now maintained by Barclays Capital. - 30 -

securities based on sub-prime mortgages and are the last to be affected by mortgage defaults but rather bear market risk.17 Moreover, following Gorton and Metrick (2009) we choose the LIBOR-OIS spread as a proxy for illiquidity risk in the repo market. LIBOR represents the funding rate for banks in the interbank market over a period of 3 months and OIS is the overnight index swap rate, which is a fixed-to-floating interest rate swap based on an overnight reference rate such as the Fed funs rate. Since the OIS has virtually no counterparty risk there is no principal payment and the interest rate differential between the fixed and the floating rate is paid at maturity the LIBOR-OIS spread mainly reflects counterparty risk for the lender. A spread widening indicates a greater reluctance of lenders in the interbank market to provide short-term liquidity. In addition we implement the daily change in the VIX index, which measures the implied volatility of S&P 500 index options, and daily returns on the S&P financials index as control variables. We estimate following time-series equation with daily data from January 2007 until September 2009:
2

CDSt = 1 +

k =0 2+ k

LOISt k +

5+ k

ABX

tk

The results are given in Table 6. The results seem to suggest that contemporaneous and lagged changes in prices for ABX.HE AAA tranches do not have any explanatory power on the markets assessment of bankruptcy risk for financial institutions, indicating that the market does not attribute daily mark-tomarket risk on banks exposures to asset-backed securities to heightened
17

VIX t +

SPXFt + t

Using lower rated tranches in our regressions does not alter the results significantly. - 31 -

insolvency risk. Rather the coefficients on the LIBOR-OIS spread are statistically significant and seem to explain part of the changes in CDS spreads of banks, particularly with a one-day lag. The results somewhat support the anecdotal evidence and suggest that constraints in the interbank lending market increased the perceived risk of bankruptcy, not daily mark-to-market risk. 4. Market reaction to IASBs amendment to IAS 39 The risk of balance sheet insolvency and regulatory failure of banks should also be reflected in stock prices as investors face expropriation in the case of bankruptcy or nationalization of troubled institutions. Hence, an increase in bankruptcy risk is generally associated with negative stock returns. In this section we investigate stock returns of a portfolio of 481 banks around the IASBs announcement of an amendment in IAS 39 allowing banks to re-classify certain financial instruments from the trading category (which requires continuous marking to market) to the loan category (which is measured at cost). This amendment effectively allowed banks to measure securities which were previously held for trading purposes at amortized cost and can be viewed as a partial suspension of fair value accounting for certain assets.18 If investors regarded mark-to-market accounting as one of the main reasons for the increased bankruptcy threat for financial institutions the overall market reaction to the announcement of this amendment should be positive. In fact, as shown in Figure 5 abnormal returns are predominantly positive in the run-up to the announcement
18

A reclassification was already permitted by the FASB in rare circumstances. Yet, the IASBs move to allow a reclassification under regular circumstances was seen by the market as a partial suspension of fair value accounting and hence expected to benefit all financial institution. - 32 -

and also reveal a sharp increase thereafter.19 The pre-announcement run-up in bank shares might indicate the expectation of a positive change in accounting rules during the increased public discussion and media attention to this matter. During this period a significant amendment in the accounting rules became increasingly likely.20 Table 7 summarizes cumulative abnormal returns (CAR) and statistics for various event windows. Almost all CARs are highly statistically and economically significant. During the 3 day window around the announcement the portfolio experienced abnormal returns of 3.25%, in 11 days these increased to 6.9% and in the 21 days around the announcement the cumulative abnormal return of the portfolio reached 17%. The evidence points towards the markets perception of a reduction in bankruptcy risk resulting from the relaxation of the fair value accounting rules. 5. Market reaction to Merrill Lynchs distressed sale of its ABS portfolio In line with the previous section we further investigate stock returns of a portfolio of banks around a major market transaction in July 2008 in the, until then, frozen market for asset-backed securities. In July 2008 Merrill Lynchs announced the sale of its ABS CDO portfolio with a face value of $30.6bn at a price of $6.7bn to
19 20

Since the event date is the same for all stocks and these only include financial institutions, calculated abnormal returns will be clustered in calendar time and industry. Bernard (1987) discusses possible problems with statistical inference methods when residuals are crosssectionally dependent. However, Brown and Warner (1980) show in their simulation results that if other than mean adjusted returns are used as performance measures adjustments for cross-sectional dependence have little effect. Nevertheless, in the tests conducted here all stocks are aggregated into a single portfolio in event time and all relevant measures are calculated on the portfolio level. Conducting the tests of significance for the portfolio takes into account the cross-sectional dependence of the individual stocks (Schwert 1981; Jaffe 1974). Abnormal returns are calculated using the Fama-French three factor model plus a momentum factor. As proxy for the market portfolio the CRSP value-weighted index is used. Re-estimation with the equally weighted index does not change the results significantly. Model parameters are estimated over a 255 day estimation period ending 45 days before the event date. As common for regulatory changes these are usually introduced after a public debate in prior months making it difficult to identify an exact event date for the purpose of this study. Therefore, the event window is expanded to 30 days around the announcement day. - 33 -

the private equity fund Lone Star. This sale constituted one of the few market transactions in these assets and hence could have served as a reference for other financial institutions to mark similar assets at equally high discounts with profound effects on balance sheet valuations and write-downs.21 If investors feared that the prevailing price in this single transaction would have had an impact on fair values of similar assets on other banks balance sheets due to the application of mark-to-market accounting, this would cause a general decline in share prices of financial institutions at the announcement of the transaction.22 Figure 6 shows daily abnormal portfolio returns for a portfolio of 588 banks (excluding Merrill Lynch) during the days surrounding the transaction announcement. Abnormal returns are predominantly negative in the month before and after the announcement and highly volatile, reflecting the markets uncertainty regarding bank valuations. As summarized in Table 8 cumulative abnormal returns are highly negative during the period 30 days before until 2 days before the announcement (albeit only statistically significant based on the sign test), but significantly positive one day before the announcement. However, with the announcement of the Merrill Lynch transaction cumulative stock returns of the portfolio of other banks turn significantly negative (-0.66%, t-statistic -2.14) suggesting the markets reassessment of the bankruptcy threat due to the sale announcement. However, the results based on longer event windows do not provide a consistent picture in this respect. Moreover, the results might have been confounded due to the release of other market relevant information regarding the financial position of banks, although a news search on Factiva revealed that no
21 22

The transaction was announced before the FASB and the IASB issued additional guidance in October 2008 on the application of fair value measurement when markets become illiquid. See for example Financial Times article from 30 July 2008: Banks under pressure to follow $30bn Merrill cut-price debt sale. - 34 -

other major announcements were made. The preliminary results do not provide consistent evidence of investors perceiving increased risk of externalities and feedback loops in bank balance sheet valuations due to mark-to-market accounting. Recognising the deficiencies of event studies for statistical inferences of the impact of regulatory changes on stock returns, we additionally run cross-sectional time-series regressions similar to Cornett et al. (1996) and inspired by Schipper and Thompson (1983). The methodology and regression results are presented in the appendix and do not alter our conclusions based on the event study above.

VI. Conclusions: Implications for fair value

Against the background of a polarised debate on the merits of fair values in bank balance sheets, it would be easy to draw unsound partial inferences from our discussion. For example, those hostile to fair values might conclude that if fair value was irrelevant to the failure of Northern Rock and Lehman Brothers, and if bank leverage seems not to have been affected by fair values, why go to all the trouble of fair values: why not instead revert to cost? Or critics of fair value might find comfort in our evidence that the stock market prices of banks changed when fair value procedures were relaxed, even though there was no change in the banks underlying economic position: fair value induces artificial valuation changes, it might be argued. We take a more complex view. For example, we accept that, for many decisions, cost may be a more important measure of an asset than current market price for example, if the asset is to be held to maturity, if the bank is sure to survive to its maturity, and if the market for that asset is currently frozen. Then, we agree that if
- 35 -

fair values are relied upon for valuing bank assets, pro-cyclical tendencies may be reinforced as collateral recorded at fair value swells and shrinks over the cycle. We also recognise the problems caused under the present legal and regulatory regimes if one banks distress sale of an asset at a huge discount requires a reduction in the carrying value of corresponding assets in another banks balance sheet, which the second bank has no intention of liquidating before maturity. But these concerns do not lead us to support a retreat to cost in place of fair value. On the contrary, our analysis reinforces the case for reporting market values, especially in circumstances of financial crisis. First, we have argued that it is precisely at times of crisis that cash flow insolvency comes to dominate balance sheet insolvency; and so the liquidation values of assets become crucial in decisions on whether a bank should continue to operate, and whether it is a reliable counter party. This is the case even if the bank would ordinarily choose to hold these assets until maturity: in the extraordinary circumstances of crisis it may not have that option! But liquidation values alone are not appropriate in such circumstances: stakeholders and regulators reading the accounts also need to know the valuation of the asset relevant if it continues in business and holds to maturity that valuation will often be amortised cost. Second, we have argued that neither the legal triggers for failure nor the regulators rules for capital adequacy are aligned with the economic decision for equity-holders whether to continue or to close a business such as a bank. That decision requires a comparison of value in use of the business assets with their realisable value in the best alternative use. In the case we have been considering, the bank would compare holding the asset to maturity (where cost might be appropriate) or selling now, for whatever it would fetch on the market (mark to market version of fair
- 36 -

value). To conclude, much of the debate on whether to opt for fair value or cost is redundant: we need both valuations to be disclosed and to be incorporated in regulators assessments.
- 37 -

Appendix A: Robustness test

In addition to the event study approach in section VI we test the robustness of our results using cross-sectional time series regressions. Due to clustering in event time and industry in our extreme case the event dates are the same for all firms and all firms belong to the same industry the residuals from the asset pricing regressions will be cross-sectionally dependent. This might lead to rejection of the null hypothesis that the event had no effect on stock returns when in fact it is true. In order to mitigate this problem in section VI we investigate returns to an equally weighted portfolio of stocks instead of returns to individual firms and all relevant inference measures are calculated on the portfolio level. However, to make more efficient use of the information of individual firms we run cross-sectional time series regressions similar to Cornett et al. (1996). The return generating process is given by:
2

Rit R

k =1

ft

= i + 1,i ( Rmt R

ft

)+

2,i

SMB + 3,i HML +

4,i

MM +

4+ k,i

Dk

it

where
Rit R
ft

= Daily excess stock return for firm i. = Intercept coefficient for firm i. = Risk coefficients/ parameters to factors j (j =1,,6). = Market premium to stock i. = Fama-French factor mimicking portfolio of returns on small minus big firms retrieved from Kenneth Frenchs website = Fama-French factor mimicking portfolio of returns on high minus low book-to-market firms retrieved from Kenneth Frenchs website = Momentum factor retrieved from Kenneth Frenchs website
- 38 -

j,i ft

Rmt R SMB HML

MM

Dk

= dummy variables which equal one during a three day period around the event announcement and zero otherwise for the two announcements k=1 (IASB announcement) and k=2 (Merrill Lynch announcement). = random disturbance term assumed to be normally and identically distributed independent of the excess return on the market, the Fama-French and momentum factor loadings and the event announcement variables.

it

Under the null hypothesis that the announcement had no impact on stock returns the parameters on the dummy variables will be equal to zero. The regression coefficients are estimated using generalized least squares (GLS). Coefficient estimates and statistics are given in the Table below.
Appendix - Table 1 Rm-Rf 0.588 (117.23)** SMB0.495 HML0.511 MM-0.211 D10.014 D20.002 Constant-0.0004 (43.82)** (36.29)** (24.06)** (13.39)** (1.85)

(5.41)** Observations284386 Absolute value of z statistics in parentheses * significant at 5%; ** significant at 1%

The coefficient on the IASB announcement is positive and significant confirming our previous results of the event study. The coefficient on the Merrill Lynch announcement, however, is positive, but not significant, which also re-affirms the inconsistent results of the event study.
- 39 -

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- 45 -

Figure 1
Composition of regulatory capital

Regulatory Capital Tier 1 Core Tier 1:

Ordinary shares Reserves

Tier 2 Upper Tier 2:

Perpetual pref. shares Perpetual subord. debt

Other Tier 1:
Non-cumulative preference shares

Lower Tier 2:
Non-perpetual subordinated debt

Table 1

Northern Rock key balance sheet items

Northern Rock Balance Sheet items, 31.12.2007 billion Assets109.3 (2006: 101.0) Liabilities106.6 (2006: 97.8) Risk-weighted assets Basel 2 Ratios Tier 1 ratio Total capital 20.7 % 7.7 14.4
(Source: Northern Rock, Annual Report and Accounts, 2007) - 46 -

Table 2
Triggers for bank failure

Failure type Formula Affected by balance sheet valuation method? Yes No No Yes Legal BSI Legal CFI Economic - EF Regulatory - RF A<L CI<CO Apv < Anrv
1 A < L + ( A) q

Table 3
Frequency of sample firms per sector and year Year Commercial Banks 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 145 145 175 179 175 183 180 177 167 168 169 191 180 170 498 492 473 458 459 494 573 593 569 584 577 572 555

523 485 Savings Institutions Broker-Dealers 5 5 9 13 16 18 22 28 31 28 27 27 27 34 259 266 244 232 204 203 220 205 194 179 166 160 147 148 143 12 14 16 22 27 31 43 51 44 42 43 44 46 46 46 49 54 58 57 69 65 55 48 46 49 50 54 57 53 Total 162 164 200 214 218 232 245 256 242 238 239 262 253 250 803 807 771 748 720 766 858 853

811 809 792 782 756 728 681 - 47 -

Table 4
Sample Descriptives Variable Total assets (million) Tier 1 ratio (%) Tier 2 ratio (%) Total liabilities (million) Shareholders Equity Leverage (assets/equity) Market value (million) Mean 13821 11 3 12778 1015 12 1803 SD 84888 3.8 4.3 79166 5965 3.8 9372 Min 17.42 1.32 0.01 13.61 1.33 2.25 0.07 Max 2251469 46.8 49.77 2105626 177052 48.9 240966 Obs 25622 25622 25622 25622 25604 25622 25093 n 1460 1460 1460 1460 1460 1460 1446

Figure 2

Mean leverage ratio 1980-2008 The figure depicts mean leverage ratios measured as the ratio of total assets to total shareholder equity for all financial institutions in the sample with assets larger than $10bn. Average leverage ratio for the entire sample is shown in Panel A and subdivided by type of instiution, commercial bank, savings institution and broker-dealers, in Panels B-D, respectively.
A: Entire sample
18 20

B: Commercial banks
Mean Leverage 14 16 12 10 12 1980 mean leverage 14 16 18 1980 1990 Fiscal Year 2000 2010 1990 Fiscal Year 2000 2010 22 20 20

C: Savings institutions D: Broker-dealers

12 mean leverage 14 16 18 1980 1990 Fiscal Year 2000 2010 5 1980 mean leverage 10 15 1990 Fiscal Year 2000 2010

- 48 -

Figure 3
Change in common equity and total assets 1980-2008 (base: 1980) The figure depicts the change in average common equity and total assets for all financial institutions in the sample with assets larger than $10bn from 1980-2008. All figures are rebased at 1980 levels. Average equity (blue bars) and total asset (red bars) of the entire sample is shown in Panel A and subdivided by type of instiution, commercial bank, savings institution and brokerdealers, in Panels B-D, respectively. A: Entire sample
6 7 5 3 4 1 2

B: Commercial banks

19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08

1 Common equity Total assets

19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08

3 5 Common equity Total assets

C: Savings institutions
1.2 50 1 0.8 0.6 0.2 0.4
19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19

D: Broker-Dealers

90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08

1 Common equity Total assets

19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08

10 20 30 40 Common equity Total assets

- 49 -

Figure 4
Quarterly asset growth vs leverage growth 1980-2008
Broker Dealers 1980-1994
Asset growth vs Leverage growth
.6 1

Broker Dealers 1995-2008

Asset growth vs Leverage growth
Quarterly asset growth -.2 0 .2 .4 -.4 -.5 -.5 Quarterly asset growth 0 .5 -.5 0.5 Quarterly Leverage growth 1 0.5 Quarterly leverage growth 1

Commercial Banks 1980-1994

Asset growth vs Leverage growth
.6 1

Commercial Banks 1995-2008

Asset growth vs Leverage growth
Quarterly asset growth 0 .2 .4 -.4 -.2 -.5 0 Quarterly leverage growth .5 -.5 Quarterly asset growth 0 .5 -.5 0 Quarterly Leverage growth .5

Savings Institutions 1980-1994

Asset growth vs Leverage growth
.6 .6

Savings Institutions 1995-2008

Asset growth vs Leverage growth
-.2 -.5 0.5 Quarterly leverage growth 1 -.2 Quarterly asset growth 0 .2 .4 Quarterly asset growth 0 .2 .4 -.5 0 Quarterly leverage growth .5

- 50 -

Table 5
Regression results (dependent variable: Quarterly leverage growth) This table presents coefficients and t-statistics of pooled regressions of quarterly growth in leverage (measured as the ratio of total assets to equity) on quarterly growth in total assets ( TA ) and a set of dummy and interaction variables. ACC represents a dummy variable for the prevailing accounting regime which is equal to 1 for a fair value accounting regime (in the years after 1994) and zero otherwise; D1 and D2 are categorical dummies for broker-dealers and savings institutions. The regression is pooled over the entire sample period 1980-2008. T-statistics are calculated using heteroscedasticity robust standard errors. ***, **, * statistically significant at the 0.001, 0.01, 0.05 level, respectively. (1) (2) 0.622 (29.31)** 0.003 (3.13)** -0.188 (-6.91)** -0.001 (-0.22) 0.009 (4.38)** 0 (0.02) 0.003 (1.31) (3) 0.486 (20.26)** 0.002 (2.17)* -0.153 (-5.67)** -0.009 (-2.78)** 0.004 (1.84) 0.001 (0.31) 0.003 (1.48) 0.27 (9.03)** 0.178 (4.43)** (4) 0.484 (17.87)** 0.002 (1.88) -0.149 (-4.40)** -0.01 (-3.05)** 0.007 (2.79)** 0.003 (0.67) -0.001 (-0.33) 0.304 (7.51)** 0.012 (0.13) -0.061 (-1.06) 0.212 (2.08)* -0.009 (-9.67)** 42621 168.25 0.21

TA

ACC TA ACC D1 D2 D1 ACC D2 ACC D1 TA D2 TA

D1 TA ACC 0.623 (29.37)** 0.004 (3.72)** -0.188 (-6.95)** -0.001 (-0.29) 0.011 (14.55)** Constant Observations F-statistic R-squared -0.014 (-16.46)** 42621 324.45** 0.2 -0.014 (-15.71)** 42621 233.55** 0.2 -0.009 (-10.25)** 42621 198.65** 0.21 - 51 -

D2 TA ACC

Table 6
Regression results (dependent variable: Daily change in CDS spreads) This table presents coefficients and t-statistics of time series regressions of the daily avergage change of credit default swap spreads of 125 banks on daily changes of LIBOR-OIS spreads ( LOIS ) and its two lags, daily changes of the price of the ABX.HE AAA tranche index ABX and its two lags, daily changes in the VIX index VIX and on daily returns on the S&P financials index SPXF . The regression is run from January 2007- September 2009. Model (1) uses PraisWinston FGLS estimation for serially correlated errors, model (2) estimates the regression with OLS and autocorrelation robust standard errors based on the Newey-West method, and model (3) includes a lag for the dependent variable CDS as regressor and hence is estimated with an ARCH model. T-statistics are calculated using heteroscedasticity robust standard errors where appropriate. ***, **, * statistically significant at the 0.01, 0.05, 0.10 level, respectively. (1) (2) 0.055 (1.65) 0.049 (1.68)* 0.161 (5.91)*** 0.03 (1.96)** 0.005 (0.03) 0.038 (0.24) 0.13 (0.78) 0.057 (1.97)** -0.002 (-0.05) (3) 0.054 (1.93)* 0.157 (5.99)*** 0.016 (1.00) 0.011 (0.03) 0.04 (0.12) 0.103 (0.3) 0.054 (1.70)* -0.001 (-0.01) 0.167 (4.35)*** 0.002 (1.04) 391

LOISt

LOISt 1 LOISt 2 0.161 (5.31)*** 0.031 (1.43) 0.019 (0.11) 0.017 (0.1) 0.138 (0.82) 0.054 (1.47) -0.008 (-0.16)

ABX
ABX ABX

t
t1 t 2

VIX

SPXFt CDSt 1 Constant Observations R-squared 0.003 (1.39)

391 0.09 0.003 (1.26) 391 - 52 -

Figure 5
Abnormal portfolio returns of a portfolio of 481 banks around the IASB announcement of amendments to IAS 39 (reclassification of financial instruments) 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% Mean abnormal returns Cumulative abnormal returns -30 -27 -24 -21 -18 -15 -12 -9 -6 -3 0 3 6 9 12 15 18 21 24 27 30

Table 7

Abnormal portfolio returns around the IASB announcement of amendments to IAS 39 (reclassification of financial instruments) Days (-30,-2) (-1,0) (-1,+1) (0,+30) (-5,+5) (-10,+10) N 481 481 481 481 481 481 Cumulative portfolio abnormal returns 17.04% 1.02% 3.25% 9.81% 6.88% 17.16% t-statistic Generalized Sign Z 6.660*** 1.523 3.945*** 3.711*** 4.366*** 7.883*** 8.518*** 1.131 4.232*** 7.150*** 7.059*** 9.339*** *** statistically significant at the 0.001 level. - 53 -

Figure 6
Abnormal portfolio returns of a portfolio of 588 banks around Merrill Lynchs announcement of the sale of their ABS CDO portfolio to Lone Star 3.00% 2.00% 1.00% 0.00% -1.00% -30 -27 -24 -21 -18 -15 -12 -9 -2.00% -3.00% -4.00% -5.00% -6.00% -7.00% -8.00% Mean abnormal returns Cumulative abnormal returns -6 -3 0 3 6 9 12 15 18 21 24 27 30

Table 8

Abnormal portfolio returns around Merrill Lynchs announcement of the sale of their ABS CDO portfolio to Lone Star Days (-30,-2) (-1,0) (-1,+1) (0,+30) (-5,+5) (-10,+10) N 588 588 588 588 588 588 Cumulative portfolio abnormal returns -2.45% 1.05% -0.66% -0.06% 1.78% 1.92% t-statistic Generalized Sign Z -1.475 2.399** -2.140* -0.033 1.740* 1.361 -3.852*** 5.551*** -2.780** 0.19 4.066*** 1.427 ***, **, * statistically significant at the 0.001, 0.01, 0.05 level, respectively. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx- 54 -

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Contents
Contents.......................................................................................................... 64 Introduction..................................................................................................68 Introduction..................................................................................................68 Background.................................................................................................. 68 Case Company Volvo Construction Equipment Region International.........69 Research Problem.........................................................................................69 Problem Definition........................................................................................70 Research sub-question 1..............................................................................71 Research sub-question 2..............................................................................71 Main research question................................................................................71 Purpose........................................................................................................71 Research sub-question 3..............................................................................71 Thesis Outline..............................................................................................71 Conclusion.................................................................................................... 71 Analysis........................................................................................................71 Introduction..................................................................................................71 Theoretical framework..................................................................................72 Empirical study.............................................................................................72 Methodology.................................................................................................72 Recommendations........................................................................................72 Theoretical Framework.................................................................................72 Theoretical Framework.................................................................................72 ..................................................................................................................... 73 Marketing Channels......................................................................................73 CRM.............................................................................................................. 73 Customer......................................................................................................73 MNC.............................................................................................................. 73 The nature of marketing channel relationships............................................74 Customer value............................................................................................76 Customers as an asset.................................................................................77 Definition of Customer Value Management (CVM)........................................77 CVM cycle.....................................................................................................77

Right customers...........................................................................................78 Right relationships........................................................................................78 Creating customer value through customer satisfaction and service quality ..................................................................................................................... 79 Customer satisfaction...................................................................................79 Relationship Marketing.................................................................................80 CRM............................................................................................................. 82 Strategic Framework for CRM.......................................................................83 Potential Pitfalls and Unknowns in CRM Implementation..............................83 Volvo CE Region International within Volvo Group.......................................84 Project Implementation................................................................................84 Consultants opinion.....................................................................................85 Organizational Readiness.............................................................................85 Consultants opinion.....................................................................................85 Methodology.................................................................................................86 Methodology.................................................................................................86 Scientific Approach......................................................................................86 Research Strategy.......................................................................................87 Selection of Case Study................................................................................88 Convenience Sampling................................................................................89 Snowball Sampling.......................................................................................89 Unique Sampling.........................................................................................89 Data Collection.............................................................................................89 Primary Sources............................................................................................90 Secondary Sources.......................................................................................91 Quality of Research......................................................................................91 Internal Validity............................................................................................91 External Validity...........................................................................................92 Reliability......................................................................................................92 Analysis........................................................................................................93 Marketing Channels......................................................................................93 Customer Value............................................................................................95 Customer as an asset...................................................................................95 CVM.............................................................................................................. 95 Customer centricity......................................................................................96

Purposes....................................................................................................... 98 Implementation............................................................................................99 Roles.............................................................................................................99 Outcome.....................................................................................................100 Benefits......................................................................................................100 Pitfalls and Unknowns.................................................................................101 Conclusions................................................................................................ 103 Conclusion..................................................................................................103 How can an MNC bring more value to its customers with the help of a CRM tool & philosophy?......................................................................................103 Research sub-question 2............................................................................103 How can an implementation of a CRM tool & philosophy by the dealers deliver more customer value to an MNC?...................................................103 Research sub-question 3............................................................................104 How can an MNC motivate its dealers to implement a CRM tool & philosophy?................................................................................................ 104 How can an MNC become a more customer centric company by helping its dealers to implement a CRM system?........................................................105 Recommendations......................................................................................105 Recommendations......................................................................................106 Develop Effective Channel Management....................................................106 Identify Benefits and Costs to the Dealers..................................................107 Develop a Proper Implementation Strategy................................................107 Set a clear goal...........................................................................................107 Motivate employees...................................................................................108 Put emphasize on training and education..................................................108 Learn from the others.................................................................................108 Offer Sponsorship.......................................................................................108 Develop a Success Measurement System..................................................108 Bibliography...............................................................................................109 Appendix.................................................................................................... 112

List of Abbreviations
B2B Business to Business BRIC Brazil, Russia, India, China CRM Customer Relationship Management CVM Customer Value Management DMS Dealer Management System KPI Key Performance Indicator MIE Market-Intelligent Enterprise MNC Multinational Corporation LDS Local Dealer System LTV Lifetime Value SFA Sales Force Automation TOD Targets for Operational Development

TQM Total Quality Management Volvo CE Volvo Construction Equipment Volvo TC Volvo Truck Company WIIFM What in it for me

Introduction
This chapter introduces the case company followed by an overview of the case that has been studied. After that the main objectives are presented, as well as the introduction to the research topic. Next the research problems are covered and the purpose of the research stated.
Introduction

Introduction Background
The current market situation demands a customer centric approach from the company. To increase the knowledge about the customers is important in order to build and establish favorable relationships. Good relationships with customers are the basis for successful partnerships. The increased possibilities to access information make it possible to target the customers in a more proactive and systematic way.

Due to the globalization and internationalization, international companies compete at an ever more aggressive way. The globalization has led to several opportunities and access to new buyers, but at the same time increased the number of competitors. Simultaneously the customers expectations have raised and they have become more demanding. In order to make it possible for companies to deliver what the customers expect, they need to know their needs and wants. Experiencing current crisis situation a Multinational Corporation (MNC) is in a need to act proactively in order to improve its operations and to increase its competiveness. It is possible only if all company representatives, including dealers, change their vision and become more customer-centric. This new approach incorporates better population management by dealers in order to increase sales and achieve better service. It should be combined with a more planned and proactive sales process in order to create higher hit rate and spend less time. It can be accomplished by acquiring more knowledge about customers and spreading it to personnel at the dealerships and by minimizing administration via improved performance metrics in the sales process. The best solution for reaching these goals can be implementation of Customer Relationship Management (CRM) tool and philosophy. In this context, the term philosophy implies focusing all companys business activities on creating mutually advantageous relationships with the customers as well as implementing a shared view on CRM throughout the entire organization. CRM system has derived from the Contact Management in the 1980s. The main purpose of CRM is to improve the relationships between a company and a customer. The system is a part of a business strategy and it organizes the effective use of companys recourses in the Introduction departments of marketing, sales and support. Being a customer-centric management strategy, the system serves for redesigning the business function, recombining the work flow, and upgrading the satisfaction degree to appeal to the customer, in order to gain profit. The research will be done on a case study, where Volvo CE Region International is the case company. In the following section the case company will be represented.

Case Company Volvo Construction Equipment Region International

Volvo Group is the worlds leading supplier of commercial transport solutions providing products such as trucks, buses, construction equipment, and drive systems for marine and industrial applications as well as aircraft engine components. The Group offers financial services to its customers as well. The Volvo Group has about 100,000 employees, production facilities in 19 countries, and sales activities in 180 countries. Quality, safety and environmental care are the core values within Volvo Group and they are essential components of the corporate culture. Volvo Construction Equipment (CE) is a part of Volvo Group. Volvo CE is the worlds largest manufacturer of articulated haulers and wheel loaders as well as one of the worlds largest manufacturers of excavation equipment, road development machines and compact construction equipment. The headquarter (HQ) of Volvo CE is located in Brussels, in Belgium.

Research Problem
Research Background

In Region International Volvo CE is represented by 66 dealer partners, six dealer candidates, and Volvo owned dealers in Russia, Turkey and Morocco. The size of the dealer companies varies from five to several hundred employees. In these companies

Volvo CE is usually the major part of business but not the total. Volvo CE has promoted dealer partnerships with active processes for sales and after-sales for some ten years. However, the years 2003 to 2008 were characterized by 30 percent annual volume growth and lack of machine inventory. It means that the dealers were order-takers. Moreover, the dealer sales and after-sales organizations normally do not cooperate well. It results in incorrect forecasts from dealers even if it is two weeks before actual end customer order. And in general, customer and prospect knowledge is rather weak within the dealer companies. To improve the situation described above, Volvo CE believes that implementation of CRM philosophy and tool will boost sales and increase customer satisfaction. The system is aimed to provide relevant and valuable information about the customers for the departments of marketing, sales, management, customer support, and logistics/finance. Further, the benefits the listed departments get from the CRM tool are identified. Marketing: Possibility to make selections on the customer base for targeted offers and activities Better follow-up of campaign results Know customers hobbies, favorite TV/Radio programs, newspapers Sales: A complete picture of the customer covering both conducted and planned commercial activities as well as Machine Park, service-jobs and order status.
Introduction

Proactive warnings from the system alerting about customers to target CRM should indicate to after-market which customers that are hot prospects, in order to safeguard sales opportunities Management: Consolidated customer overview Planning and monitoring of activities Improved reporting and analysis tools Customer support: Consolidated customer overview: Volvo Machine Park is key Planning and monitoring of activities Improved reporting and analysis tools Possibility to make selections on the customer base for targeted offers and activities what requires high information quality Logistics/finance: Possibility to retrieve sales forecast directly from CRM Reduce manual work by having CRM, generate more documents automatically and use CRM as a channel towards sales instead of e-mails Possibility for Finance to black-list customers in CRM

Problem Definition
In this section the main research question and the research sub-questions, deriving from the main question, are represented. Since the MNCs have moved their focus from product to the customers, a customer-centric view is now a strong competitive advantage for every company. Being customer-centric means prioritize the customers and their needs in a companys business strategy. CRM is customer-centric by its nature, therefore implementation of the CRM tool and philosophy within the companys dealers will increase its competitiveness on the market. Therefore, the main research question is formulated as follows:
Introduction

In order to answer the main research question three sub-questions have been identified. The first two sub-questions are based on the idea that the development of the customer-

centric view within the company creates dual value both for the company and for its customers. The third sub-question regards the issue of motivating MNCs dealers to implement CRM, since it is an expensive and time-consuming process. The assumption is that while using CRM, dealers will be more aware of their customers what can help them to meet their needs and preferences. As a result perceived service quality can be improved and customer satisfaction can be increased. This is the value the customers get from the MNC. This question helps to understand how the use of a CRM tool makes it easier for the MNCs dealers to attain new customers, to retain existing customers and to enhance their loyalty what results in sales increase. This is the value the MNC gets from its customers.

Research sub-question 1
How can an MNC bring more value to its customers with the help of a CRM tool & philosophy?

Research sub-question 2
How can an implementation of a CRM tool & philosophy by the dealers deliver more customer value to an MNC?

Main research question

How can an MNC become a more customer centric company by helping its dealers to implement a CRM system? Introduction

Since an implementation of CRM is a complicated and time consuming task, an MNC needs to find strong motivators in order to convince its dealers to employ the tool and philosophy.

Purpose
Considering all the information above, the main purpose of this research can be identified as studying businesses where CRM tool and philosophy were implemented and how they contributed to the management of the companies. Through this analysis the benefits of the tool can be studied thoroughly and the road map for its integration can be identified. Collected information and its detailed analysis will help to create a framework for a CRM implementation in Volvo CE, Region International.

Research sub-question 3
How can an MNC motivate its dealers to implement a CRM tool & philosophy? Introduction

Thesis Outline Conclusion

MNC brings value to customers Customers deliver value to MNC MNC motivates its dealers MNC becomes customer centric

Analysis
Channel relationships Customer value CRM

Introduction
Background & case company

 Research questions Purpose Delimitations

Theoretical framework
Marketing channels Customer value Relationship marketing CRM Summary

Empirical study
Volvo CE Region International within Volvo Group Project implementation Marketing issues

Methodology
Scientific Approach Research strategy Data Collection Quality of research Selection of case study

Recommendations
Develop effective channel management Identify costs & benefits Implementation strategy Success Measurement

Theoretical Framework
This chapter covers the main theories involved in the research. First, the nature of relationships in marketing channels is described; second, the issues regarding creation and delivery of customer value are introduced. Relationship marketing is the next topic for discussion. Finally, the CRM tool and philosophy are overviewed.

Theoretical Framework
The model below represents discussed topics and connects them to each other.

Marketing Channels
Marketing channels are the routes to markets, which are used in order to sell product and service to consumers and business buyers everywhere in the world. Coughlin et al. (2006, p. 2) Give the following definition of a marketing channel: A marketing channel is a set of interdependent organizations involved in the process of making a product or service available for use or consumption. This definition has some explications. First, it points out that a marketing channel is a set of interdependent organizations. It is not only one firm but rather several entities involved in the business. Each channel member depends on the other to perform their jobs. Also, the definition states that running a business channel is a process, but not an event; distribution takes time and when the sale is already made the relationships with the buyer are not ended. Finally, the purpose of the marketing channel is to satisfy the end-users, no matter if they are consumers or business buyers. A manufacture who sells through distributors, retailers, or wholesalers, who in turn sell to customers, is tempted to think that it generated sales and satisfied customers. However, the definition argues otherwise. It is crucial that all channel

CRM
Tool & Philosophy

Customer
- Satisfaction - Service quality

MNC
- Marketing channel relationships - Profitability - Loyalty

Suppliers, producers and final customer of industrial products are linked together through channels. Channel participants serve a key role in order to achieve efficient and timely movement of goods, services as well as market intelligence. A strong channel network requires many years of constant attention to develop and maintain. However, it usually serves as an effective market barrier to competitors. Channel participants give important market information, negotiating, product availability as well as after-sales support for the buyer (Mahin, 1991). Coughlan et al. (2006) argue that work of the channel includes the performance of several marketing flows. It means that all processes done by different channel members at different time points flow through the channel rather than are performed. Some of the flows may move forward through the channel (physical possession, ownership, and promotion), while other move up the channel from the end-user (ordering and payment). Such flows as negotiation, financing, and risking can move in either direction or be engaged in by pairs.

The nature of marketing channel relationships

There are several theoretical perspectives for understanding marketing channel phenomena. Ruyter et al. (1996) focus on political economy paradigm and the relationship marketing paradigm. These approaches involve such issues as long-term manufacturedistributor relationships and the power-dependence balance. High degree of partnerships involves interdependence, which is not evenly balanced. The concepts of power and dependency are essential for channel relationships. In order to create dependence in marketing channels different types of power base are used. The distinction is made between coercive (rewards and punitive actions) and non-coercive (expertise, information, recommendations) power Theoretical Framework bases. Coercive power base is grounded on the idea that a manufacturer can provide rewards to distributors, or is able to correct if distributors fail to meet the demands. It is aimed at influencing actual behavior. Whereas non-coercive power base is founded on the belief that supplier has special knowledge and conditions to propose that are not accessible from other manufacturers. Another research is focused on two distinct approaches that influence channel relationships. These approaches are behavior and economic. From the behavior point of view the relationships between manufacturers and dealers are a political struggle in which power and dependence of each party control the behavior of others. While economic approach views relationships as a search to allocate distribution responsibilities and role performance tasks in a way when costs are minimized and profits are maximized. A common base for both approaches is that relationships are created and maintained as a result of interdependence between channel members. Thus little is known about the influence of economic and behavioral interactions on channel relationships. Economic struggles can impact the way products and services are valued, and dependency of parties influences channel relationships. For example, if a manufacturer is not able to fill orders accurately, meet promised delivery dates or stick to shipping instructions, then he has little influence on dealer decisions. On the other hand, if a vendor provides steady order cycle and meets delivery dates, dealers are able to minimize stock outs and customer dissatisfaction. It can be encouraging for dealers to surrender a portion of their autonomy to the manufacturer in exchange for quality logistics. In order to understand the interdependence between parties the author suggests analyzing economic and behavioral factors simultaneously (Gassenheimer, 1996).

Young & Wilkinson (1989) focused their study on the role of trust and co-operation in marketing channels. They came to the conclusion that in dealer-manufacturer interactions trust is based on overall relationships rather than on particular episodes. The base for these relationships is satisfactory performance over time. Also, trust is developed in situations where it has an opportunity to emerge naturally, not regulated by contracts or written rules. However, trust is not inevitable in trading relationships and it is not the basis for cooperation. Co-operation always presents in ongoing relations and it is often perceived as co- ordination of actions by the parties involved. Svensson (2002) states that in marketing channel the relationships are very vulnerable due to time and relationship dependencies. Time-dependence is explained by chronological or sequential dependence between companies business activities in marketing channels.

A typology of vulnerability scenarios in marketing channels, Svensson (2002)

Since vulnerability is caused by the dependence between companies business activities, time- and relationship-dependencies are necessary foundations of vulnerability in a marketing channel context. The time-dependence dimension consists of temporary and permanent dependencies. Temporary dependencies are short-term and permanent dependencies are long-term. Relationship dependencies are represented by unilateral and the bilateral components. Unilateral dependency is interpreted by the fact that only one of the companies in a business relationship depends on the other, whereas bilateral dependency is represented by mutual dependence. The underlying dimensions create a matrix of four cells with a vulnerability scenario in each cell. Each of the scenarios has unique characteristics. For example, the elastic vulnerability scenario assumes that a company depends on temporary and unilateral factors in the interface with its customers or sub-contractors. It means that a company has to cope with a high dependence level and short-term dependence in the upstream activities. This scenario is probable for duopolistic or oligopolistic marketplace. Nonelastic scenario is characterized by permanent and bilateral dependencies, what means that a company is involved in low dependence level and a long-term dependence. And it also might occur in duopolistic or oligopolistic environment.

A more or less monopolistic market can cause the static vulnerability scenario (permanent and unilateral dependencies), when a company is exposed to high dependence level and long-term dependence. It is more likely to appear in a situation when a companys dependence on its sub-contractors is high and it has few replaceable or alternative subcontractors available, therefore its flexibility is restricted. It also can be characterized by the lack of entrepreneurial inertia and limited companys power in terms of negotiation. For a competitive marketplace the dynamic vulnerability scenario is the most common. In this case companies have to manage both low dependence level and short-term dependence; therefore they are characterized by temporary and bilateral factors. Due to temporary and mutual dependence this scenario type is the most favorable from the buyers perspective. The mutual dependence creates an increased interest between the companies.

Customer value
The process of understanding, creating and delivering value to targeted business markets and customers is called business market management. Business markets are characterized by firms, institutions, or governments that obtain goods and services for their own use or for Theoretical Framework resale beside other products and services to other firms, institutions, or government. Value is a cornerstone in business market management. Value is the worth in monetary terms of all the market offerings that a customer firm receives. To be able to create and deliver customer value and to know where resources and capabilities have the greatest potential, it is important to have a complete understanding of customer requirements, preferences, and purchasing processes (Anderson & Narus, 2004). Christopher et al. (2002, p. 20) define customer value as the ratio of perceived benefits to the perceived sacrifice that is involved. Relationships are built on a sustained basis, which involves creation and delivery of superior customer value. The value-creation process consists of three key elements; the value the costumer receives, the value organization receives and maximizing the lifetime value of desirable customer segments. The most important part of value creation is careful market segmentation since it allows tailoring the offer to the needs of specific segments. As already mentioned, customer segmentation is important when targeting relevant offers and value propositions to specific groups. However, it is also critical to be aware of the existing profitability of customer segments and understand the potential profitability of those segments in order to improve customer lifetime value (Christopher et al., 2002). The market-intelligent enterprise (MIE) has to ask two questions: what does my customer value and what is the value of my customer? This information is needed for strategically use of customers (and prospects) and segmentation of them, or, using a metaphor, finding the right dance music for each partner. The necessary data flows into organization from various sources both within and outside the organization. These sources are customer information from transactions (purchase frequency or credit information), the sales force (competitive information, corporate challenge, and philosophy), and call centers, sales promotions, survey data and the Internet.

Customers as an asset
Many companies lose focus on customer retention and maintaining relationships and concentrate on acquiring new customers. Although new customers keep the numbers up, economic potential is weak, since the growth within the existing customer base is limited. Brown (2000) explains that keeping existing customers is more profitable than attracting new ones because during the normal development of a customer relationship, the cost to market and sell to these customers declines, and the potential for gross margin improvement increases. The loyal customers usually focus not on the price alone but see the relationships with a company as value for money and act as advocates for the company helping to attract new customers. According to Christopher et al. (2002) it has been recognized that existing customers are easier to sell to and are frequently more profitable. At the same time, it is critical to take existing customers for granted and instead focusing on attracting new customers. Generally, companies spend too much resources on obtaining customers and too little on keeping them. In order to maintain the relationships it is important to apply different strategies to new and existing customers. It is also of great importance to highlight the great impact the customer retention has on the profitability. The research showed that it costs about five times more to win a new customer instead of keeping the existing one. Many companies seem to understand the importance of customer retention, although just a small number measure the economic value of their customer retention strategies. A vital component of relationship marketing is giving value to customers and at the same time getting value from them. Recognition and focus on lifetime value have a positive impact on customer retention and, as a result, reduces acquisition cost. Retention rate is used to measure customer turnover and is significant for the creation of value. Research has shown that increase in retention rate from 80 to 90 percent doubles customer lifetime from five to ten years. Longevity creates value (Brown, 2000).

Definition of Customer Value Management (CVM)

Pease (2001, p.1) defines customer value management (CVM) as managing each customer relationship with the goal of achieving maximum lifetime profit from the entire customer base. CVM gives companies an opportunity to gain benefits from the economics of loyalty by escalating retention, decreasing risk, and amortizing acquisition costs over a long period of time. Even though the purpose of CVM is to raise the aggregate value of the customer base, this can be achieved customer by customer. Of course, not every customer is profitable, however each must be managed to increase profit in general. In this case management can be focused on identifying which customers bring the least profit, and working on development and retention of other customers. CVM focuses not on managing marketing campaigns but on managing profitability of each individual customer during the whole period of the relationship. In order to make this shift companies need to develop analytical and operational capabilities. If they manage this transformation, it is reasonable to expect increased profits for years to come.

CVM cycle
Pease (2001) argue that CVM is cyclical and this cycle consists of three stages: right customers (acquisition), right relationships (development), and right retention (keeping

valuable customers). Each of these stages naturally feeds the next to maximize customer value.

Right customers
The CVM cycle starts with acquiring the most valuable customers for the business. These are customers who potentially will return to the company over a long time. The acquisition costs must be paid back, and it is proved that the break-even period is a year or more. Companies cannot aimlessly acquire customers without exploring their long-term value. Customers do not have equal value to the company, and those who are profitable for one company might be unprofitable for the competitors of this company. The acquisition of new customers involves high costs, therefore effective CVM requires analytical capabilities to identify loyal and profitable customers for one specific company. A deep analysis of the existing customer base is the best source of intelligence. Such analysis should reveal invisible characteristics and trends influencing the value. Some customers might be treated as low-value customers because they make only small purchases, however the analysis of purchase frequency may show that these customers have made small purchases every week during ten years and their value for the company is much higher that it was expected. Thorough analysis helps to understand who are the best customers and why and to identify potential profitable customers. Examining the time and channels of joining the company by the customers can be beneficial as well. It helps to define which acquisition strategies should be repeated and which result in money loss (Pease, 2001).

Right relationships
Even with the best selected customers, managers need to develop relationships that bring value. For any business, right relationship is the one that maximizes customers lifetime value. Pease (2001) offer a simplified view of customer lifetime value: Lifetime Value (LTV) = purchase size x frequency x duration This equation shows that the goal of CVM is to increase the size and frequency of purchases and extend the time during which the purchases are made. As far as the duration

of relationships cannot be measured until it is over, loyalty measures can help to predict the longevity of the relationships. Customers tend to engage in long-term relationships with the companies that manage to satisfy their needs and to respond in a right way if the needs change.

Creating customer value through customer satisfaction and service quality

Since the business environment has come through a quality revolution, it is vital for the companies to provide service and products of high quality and to have satisfied customers. However, the issue is not that simple because the expectation levels increase with the raise Theoretical Framework of quality in direct proportionality. In this case companys efforts result in no change in satisfaction levels. Of course, satisfaction is based not only on the perceived quality, even in its broad sense, but on such factor as price as well (Evans, 2002).

Customer satisfaction
According to Kotler (2008) customer value and customer satisfaction are key elements for developing and managing profitable customer relationships. Since customers buy from the company that can offer the highest customer perceived value it can be difficult to attract and retain customers. On the other hand, customer satisfaction relies on the products perceived performance in relation to a buyers expectations. Higher levels of customer satisfaction lead to better customer loyalty, which results in improved company performance. Gaining customer feedback is of great importance for a company since it allows the firm to know how satisfied the customer is with the promises. Receiving customer feedback enables the supplier to remedy occurring problems and change customer requirements and preferences if it is needed. Firms can benefit from customer feedback from three different types of customers. New customers provide information about the initial experience in cooperating with the supplier and information about how to convert new customers to established customers. Established customers, on the other hand, provide feedback about how well the supplier maintain and sustain the relationship with the customer. Ultimately, customers that have recently ended doing business with the supplier provide crucial feedback in what way the company failed to respond to the customers promise.

Integrating quality, customer service and marketing, Christopher et al. (2002)

In order to survive and achieve business success, companies have to understand what customer perceives to be the ideal service. At the same time it is essential to observe the companys service from the customers point of view and have the ability to plan for changes in that service to respond to the customers changing situations as well as constantly improve that service (Bennington & Cummane 1998). The product may be the hero but service is the star (Donaldson & OToole, 2002, p. 38).

Relationship Marketing
In general, business relationships have become more complex. Nowadays, there are far more ways for customers and suppliers to communicate with each other. Within business networks companies are interdependent and they are tied together by their relationships. Understanding customers and their problems are the main task of business marketing. In order to survive, each customer relationship has to be managed so it is beneficial for both the customer and the supplier (Ford et al. 2006). According to Christopher et al. (2002) a successful relationship demands that two or more parties learn from each other so the value exchange between them can be sustained and improved. Anderson & Narus (2004) argue that commitment and trust are two cornerstones when establishing successful relationships. Within a relationship trust involves taking actions that will lead to a positive outcome for the other part as well as avoiding unexpected actions that can cause a negative result. On the other hand, commitment characterizes the perceived continuity or growth in the relationship between two firms. According to Cunningham et al. (1996) relationships involve learned rules and norms of behavior. Relationships develop over time and several stages pass through characterized by increasing mutual adaption, reducing distance and increasing commitment. Relationships exist in a wide range of types and structures and the objective is to understand the nature of the relationships. To make sure that supplier-customer relationships evolve over time it is vital that both parts invest in the relationship. Furthermore, the investments and adaptation activities made by both supplier and customer can result in social and structural (economic) bonds that will be difficult to break. Ford et al. (2006) claim that business relationships is a companys main asset. At the same time, relationships are costly for a company. The development of relationships requires investment of time, money and resources and they involve risk, uncertainty and dependence on others. According to Christopher et al. (2002) the fundamental goal of relationship marketing is to maximize the lifetime value of a customer. By following the principle of maximizing customer lifetime value the organization is forced to realize that not all customers are equally profitable and at the same time identify the customers that can be more important to target in order to increase the profitability. Furthermore, companies need to form the relationships with several market domains or stakeholders if they aim to obtain long-term success in the marketplace. In other words, companies have to focus on marketing actions in multiple markets. It has been observed that multiple market domains can directly or indirectly influence a businesss ability to win or remain profitable customers. Another important characteristic of relationship marketing is that marketing has moved from being the only responsibility of the marketing

department to becoming cross-functional responsibility. Marketing is too important to be left to the marketing department (Christopher et al., 2002, p. 6).

Strategic triangle, Wilkinson (2008)

Suppliers strive for offering value or advantages to customers. Customer advantage or value is in the eye of beholder; it is perceived value that matters, as perceived by the customer (Wilkinson, 2008, p. 26). For customers to perceive value benefits must exceed costs. In a competitive market, suppliers compete with each other in order to provide customer advantage. However, in order to survive on the market they have to provide competitive or differential advantage. They need to offer greater customer advantage than the competitors do and customers have to perceive it. This is what is called supplier advantage. Supplier advantage is based on the resources the supplier has; and if the resources exceed the resources of the competitor, a supplier gets a resource advantage. It is recognized that the relevance and importance of different resources can vary in a dynamic environment.

Collaborative advantage, Wilkinson (2008)

A source of competitive advantage of a firm depends on its collaborative advantage, which in part depends on competitive advantage. The ability of the suppliers and competitors to offer customer advantage depends a lot on the recourses and knowledge they are able to retrieve from their relations and networks. Firms compete to develop relationships with the cooperators. And successful firms usually find willing cooperators easier than less successful firms. Relations and networks are a part of firms resources usually considered in resource-based theories of the firm. The peculiarity of this type of resources is that they are not controlled by the firm, whereas they are co-produced via interactions over time, and there exist potential conflicts and communalities of interests. In order a firm could maintain valuable relations with cooperators; it must be able to offer value to the parties involved. The problem is that many types of stakeholders are simultaneously involved in meeting customers needs. Therefore, the interconnections among relations and how they occur are usually undermined. This decreases managements ability to control resources contributing to the firms success.

CRM
Relationship marketing and CRM characterize the same fundamental thinking, but the concept of CRM is more commonly used nowadays. Gummesson (2008) claims that relationship marketing is the superseded concept for a new type of marketing and CRM is the technique how to manage customer relationships in practice. Furthermore, relationship marketing is regarded as being an antecedent to a paradigm shift in marketing. Kotler (2008) states that one of the most important concepts of modern marketing is CRM. The purpose of the CRM process is to build and maintain profitable customer relationships by delivering superior customer value and satisfaction. Furthermore, the process manages all aspects of acquiring, keeping and growing customers. In order to operate successfully on the global market, organizations shift to a more customer-centric focus and are required to respond to customer demands effectively. The CRM model, being customer-centric by its nature, places customer needs as a priority and involves three steps: 1) Understanding customer completely 2) Aligning organizational capabilities to deliver high value to customers 3) Facilitating information both outside and inside the organization A customer-driven culture requires from the companies many organizational changes. Real- time information flow across the entire enterprise is an operational necessity nowadays. Information should spread not only among internal resources but also to every part of organizations value chain. This value chain includes extended supply chain encircling partners and contractors bounded with a well-linked delivery chain to customers. Organizations strive for closed-loop sales and marketing process, meaning that all customer relations are closed by those who have the first contact with a customer because it increases customer satisfaction and retention, enhances revenues and decreases costs.

Due to the competitive pressures, CRM has become an important business process (Lambert, 2009). Brown (2000) argues that CRM has several advantages over traditional mass-media marketing. These advantages are listed below: Reduces advertising costs Simplifies targeting specific customers by focusing on their needs Gives possibility to track the effectiveness of a given campaign easily Creates competition for customers based on service, not prices Prevents overspending on low-value clients or under spending on high-value ones Speeds the marketing cycle Improves use of the customer channel

Strategic Framework for CRM

Payne & Frow (2005) argue that CRM can fail if company employees are not committed to the initiative. Therefore, employee engagement and change management are crucial for the implementation of CRM. The CRM concept derived from information technology in the mid-1990s and was usually used to describe technology-based customer solutions, for sales force automation (SFA). In academics the terms CRM and relationship marketing are used as synonyms; however CRM is more commonly used in the context of technology solutions. The main problem the majority of the companies adopting CRM face is the confusion about what constitutes CRM. An organization views the tool from a limited technology perspective or has fragmented understanding of it. There are three perspectives for CRM definition. Narrowly it can be defined as a particular technology solution (Perspective 1). A little bit broader definition can be referred to as a wide range of customer oriented IT and Internet solutions (Perspective 2). A more strategic and holistic approach to CRM focuses on the selective management of customer relationships in order to create shareholder value.

Potential Pitfalls and Unknowns in CRM Implementation

Brown (2000) claims that in order to implement CRM strategy successfully, an organization cannot rely solely on system solution. Even if customer strategy, channel and product strategy is taken into consideration, without a properly designed and employed

infrastructure strategy success is not achievable. There are many possible pitfalls in implementing CRM. According to Boulding et al. (2005) the CRM objective is to create dual value, both for the customers and the firms. However, many firms are concerned only about creation of personal value when implementing the system. In economic terms it can be said that firms use CRM activities to extract consumer surplus. Perceiving this, customers might modify their behavior. This assumption leads to the proposition that firms need to consider carefully the issues of consumer trust and privacy in order to implement the system successfully. The firms collect customer information during the transaction or the customers provide this information themselves. Firms possessing this information usually perform better on the market. However, providing this information might be not in the customer self-interest. Customers modify their behavior and act strategically. Such behavior produces incorrect data and reduces firms value share. As more customers realize that a firm uses CRM strategically, the less trusting of firms behavior they become. As a result the issues of consumer trust significantly undermine CRM activities. If customers lose trust and consider that their data are used for exploiting them, they will try to keep their data private or to distort it.

Volvo CE Region International within Volvo Group

The Volvo Group is one of the leading providers of commercial transport solutions offering its customers such products as trucks, buses, construction equipment, engines and drive systems for boats and industrial use, as well as aircraft engine components. Also, the Volvo Group is a provider of financial solutions. The Group employs 90,000 people, has manufacturing facilities in 19 countries, and sales activities almost in 180 countries. Keeping a customer focus the strategy of the company moves towards product renewal and internal efficiency, what should lead to secured competitiveness and improved profitability. For Volvo Group the year 2009 was very dramatic. As far as in most of the companys markets and extremely sharp downturn occurred, Volvo Group had to take some critical measures in order to adapt to the situation and to reduce the Groups costs that they matched lower demand. After the crisis in 2008 the demand remained low during most of 2009. The company and dealer inventories were reduced by 47 percent during 2009, what resulted in an inventory balance at the end of the year. Besides, a number of activities focused on improving efficiency within the company were carried out. Volvo CEs ambitions for the year 2010 include secure market penetration and product adaptation in BRIC countries (Brazil, Russia, India, China), prioritization of hard and soft products for new markets and customer segments, increasing the use of telemetric in Empirical Study products, as well as optimizing the industrial footprint to become more efficient in production and development. Also, the company plans to continue the development of the synergies between Volvo CE and the Chinese wheel loader manufacturer longing (Volvo Group Annual Report, 2009).

Project Implementation
In this part of the chapter all the issues regarding project implementation, application and outcome evaluation are covered. In particular the focus is made on organizational readiness, purposes for starting a CRM project, status of implementation, and mapping and

addressing roles within the process. Besides, challenges and the ways to avoid pitfalls while implementing CRM are studied. Finally, benefits and measures of success are introduced. For all these parts two types of information sources were applied. First, the general information on the subject relevant to Volvo CE was gathered from the consultants experienced in the field of study. Second, Volvo CE management and two owned and two independent dealers were interviewed. Since Volvo CE has just started working with CRM, the information from consultants is used as a background for the research.

Consultants opinion
There are many different definitions around CRM. However, they all have one thing in common and that is customer centricity. That is why Costellos (2010) definition states that CRM places the customer at the centre of the business strategy thereby increasing customer satisfaction, sales and profitability. It is important to point out that CRM is a business solution and not an IT solution and it needs to be driven by the business and fully synchronized with the business strategy. Costello (2010) argues that the goal of CRM is to ultimately support the various business strategies/objectives in the areas of Sales, Marketing and Customer Service and provide a positive return in terms of sales, profitability and customer satisfaction. Within the general industry, CRM can be categorized broadly under the headings of Sales, Marketing and Service. Almost all vendors discuss solutions to support a business with their sales, marketing and customer service challenges: Sales Area: Within the CRM sales area, generically speaking, the focus is on sales organizational aspects, team and territory management; sales lead/opportunity management, key/customer account and activity management. Various solutions support the need of executives, management and sales personnel in terms of forecasting and sales reporting. These solutions improve productivity and efficiency within the business. Marketing Area: Within this type of area lie solutions that can help make data being like gold. Solutions support segmentation, lead/campaign generation/management and ultimately support business growth activities and customer retention strategies. Service Area: Again generically speaking, solutions are available to support all aspects of customer service, from call centers, helpdesks, helping business track problems/complaints and get quick solutions and at the same time drive customer satisfaction improvements and sales growth possibilities (Costello, 2010). The CRM consultant of Line service Consultancy Company states that CRM is a strategy of running a business, according to which a company directs all its activities to creating mutually advantageous and stable relationships with the clients. Managing relationships with the customers includes designing a conveyor for gaining new clients and minimizing human factor. In order to make the strategy work, a CRM system is needed. The CRM system is an information system, which provides interaction of all departments defined by the CRM strategy.

Organizational Readiness Consultants opinion

According to Timofeev (2010) before starting the implementation process, a company has to decide if it is ready for this. Therefore, the major question that should be asked is: Are the customer needs of prime interest to the company? If the answer is yes and a customer is a priority, all business processes of the company must be built around the

customers and after that the CRM tool can be implemented. First, a company has to define its attitude to the customer; whether a customer is in the center of the companys operations. Second, a situation requiring changes is created: A + B + C > D, where: A- Dissatisfaction with the current situation B- View of the better C- Knowledge how to make the first step D- Price of changes, sacrifices (resources) If the company realizes that dissatisfaction with the current situation, clear view of the better future situation and awareness of how to begin the process overweighs the sacrifices for the initiation of the project, it can move forward on the way to CRM implementation. Third, the purposes should be defined clearly and the following questions should be answered: - Why do we do this? - Why arent we satisfied with the current situation? - What is needed to be changed in the business process? The purposes should be achievable and concrete. Clear purpose definition in numbers is a key to the project success (for example to increase the percentage of closed transactions by 20 percent) (Timofeev, 2010). Preceding implementation of an automotive CRM system a company needs to develop a customer-centric view, which can help to attract, develop, and retain valuable life-time customers. It can be achieved by delivering unprecedented customer experience through enhancing buying and ownership experience and leveraging customer information for a positive customer experience. For this reason a customer oriented culture needs to be developed. A passionate customer focused culture that fosters relationships assumes respecting customers time, their interests, their individuality, and their privacy (Costello, 2010).

Methodology
The purpose of this chapter is to present and justify the methods used in the research. First, the scientific approach is introduced, followed by the case study as a research study. Afterwards, data collection including primary and secondary sources is discussed. Also, the sampling types used in the research are presented. The methodology chapter will end with a discussion of quality of research.
Methodology

Methodology Scientific Approach

Three scientific approaches can be identified for conducting a research. They are exploratory, descriptive, and explanatory approaches. Since this study is focused on description, assessment and evaluation of an MNCs use of CRM tool, as well as on future

recommendations for implementation of the system, both descriptive and explanatory approaches can be applied for this research. The purpose of the descriptive approach is applying existing theories and models for the description of the phenomenon, which has been explored previously. In this thesis the descriptive approach is used in the theoretical framework and empirical study. In both parts the existing theories has been tested on the case and the empirical finding are described. The explanatory approach is used for testing cause-and-effect relationships. It helps to understand how the factors are interrelated and what influence they have on each other. In order to relate empirical finding to the studied theories and to explain this relationship, the explanatory approach is used in the final part of the thesis where conclusions and recommendations are presented (Scholz & Tietje, 2002). While doing research, different methods of scientific reasoning can be used. According to Yin (2009) scientific reasoning can be inductive, deductive, and adductive. In this study an adductive research approach has been chosen. Dubois & Gadde (2002) describe the adductive research approach as systematic combining, which is characterized by continuous movement between the theoretical framework and the empirical findings. Using the inductive reasoning a researcher collects information and based on it develops a new theory, whereas deductive reasoning means testing already existing theories. The deductive method is used to explain specific case based on the theory, and inductive method is used mainly for the findings and analysis. Moreover, the authors outline that continuous movement between the theoretical framework and the empirical study is suitable when accomplishing case studies since it contributes to deeper understanding and insights of theory as well as an empirical phenomenon that can be gained by case studies. An adductive approach is useful if the researchers purpose is to find out new things, variables and relationships. At the same time, the adductive research method gives a possibility to adopt existing theories and to appropriate models for solving the problem being studied in the thesis. Furthermore, the researchers distinguish between quantitative and qualitative research methods. According to Merriam (1998) the way the data is collected and analyzed is influenced by the chosen method. In case a researcher tries to predict and control events based on some pattern, the quantitative method should be used. If the purpose of the study is to get into the insight of the problem and to find the solutions, then the qualitative method is more appropriate. In order to conduct quantitative research surveys and systematic reviews are used, while for qualitative research observations and in-depth interviews are the main tools. Since the objective of the thesis is to understand the problem and develop a theory, the qualitative method is preferred. The method helps to understand how various factors within the study are interrelated. It also helps to combine subjective and objective information, which is necessary in assessing and evaluating the problem solution. The data collected in the course of the case study cannot be quantified and statistically analyzed, what is another reason for the chosen method.

Research Strategy
Yin (2003) describes several ways of doing a social science research and one of these is the case study. Experiments, surveys, histories and an archival analysis are other ways of

doing a social science research. A case study is a way to explore an empirical subject by following a set of pre-specified activities and procedures. Generally, case study is the favored strategy when how or why questions are applied. Moreover, the case study is appropriate when the purpose is to understand a complex contemporary phenomenon that cannot be controlled. The case study method permits researchers to maintain the holistic and meaningful characteristics of real-life events. The case study can be divided into four basic types of design. Yin (2003) makes a distinction between single-case and multiple-case designs. A single case study is related to a single experiment, which means that this approach is suitable when studying only one case.
Methodology

The focus of this thesis is put only on one specific company, Volvo CE Region International. Consequently, a single case design has been applied. Furthermore, the case study can be divided into embedded and holistic. In an embedded case study analysis is either concerned with more than one unit or provided with different perspective of the investigation. The holistic case study has only one unit of analysis for each case. This research has been defined as an embedded case study since the study will be analyzing multiple sampling units (Yin, 2003). Subsequently, this study has been categorized as a single case embedded design.

Selection of Case Study

Merriam (1998, p. 60) describes that within every study the researcher needs to consider where to observe, when to observe, whom to observe and what to observe. In short, sampling in field research involves the selection of a research site, time, people and events. The most suitable sampling strategy is non-probabilistic and the most frequent used form is purposive or purposeful sampling. The objective of purposeful sampling is the investigators interest in discovering, understanding, and gaining insight into the subject, and therefore it is necessary to choose a sample form which as much as possible can be learned.

Convenience Sampling
This is the most common sampling method and the reason for it is its convenience. The data is collected from the population representatives who are conveniently available. The selection is usually based on time, money, location, and availability (Merriam, 1998). The main disadvantage of this method is lack of credibility, as the sample obtained might be not representative. Yet this method was selected for the research due to time constraints and fund limits. The first interviews conducted at Volvo CE involve internal contact persons as reaching them is the most convenient and essential to establish contacts with them. Convenience sampling is also used to gain access to dealers, as contacts are provided by the company representatives. In order to increase credibility of the study other sampling methods are also employed.

Snowball Sampling
According to Merriam (1998) snowball sampling involves asking each contributor to refer to other contributor that might have knowledge about the research topic and be helpful for the study. Such chain referral process allows reaching populations which are difficult to get access to while using other methods. The process is rather simple and cost-efficient. In comparison to other sampling techniques snowballing requires little planning. Among the disadvantages of this method the following can be listed: little control over the sampling method, representativeness of the sample is not guaranteed, and there is sampling bias as the obtained sample might be only a subgroup of the entire population. In spite of these drawbacks this method is chosen for the purpose to reach more persons and gain more valuable information from them.

Unique Sampling
Unique sampling is based on unique rare attributes or occurrences of the phenomenon of interest (Merriam, 1998). As far as the studied phenomenon (CRM) is implemented only by two owned dealers of Volvo CE in Region International, these dealers are the unique sample. Only they posses useful information about the tool and its implementation and can provide unique facts about it.
Methodology

Data Collection
In order to understand the studied case more deeply, it is advised to use several sources of data collection. Yin (2003) argues that six sources of evidence can be used for a proper case study. These sources are: documentation, archival records, interviews, direct observations, participant observations, and physical aircrafts. The use of the multiple sources of evidence allows a researcher to cover a wider range of historical, attitudinal, and behavioral issues. This thesis is based on documentation and interviews as the main sources of evidence. Documentation is valid for its stability, unobtrusiveness, exact data, and broad coverage. The main weakness of this data source is its accessibility. Interviews are also widely used in case studies, as they give an opportunity to focus on the case study topic directly and provide insightful information on sensitive topics. However, the data collected via interviews might be biased due to poorly constructed questions or poor/incorrect recall of information. Besides, direct informal observation is relied on in order to provide additional information about the topic being studied. This method is widely used in studying new

technologies in order to understand the actual use of the technology and the potential problems. The use of various data sources creates data triangulation and gives an opportunity to come up with more convincing and accurate findings and conclusions in a case study. In order to increase the validity of the study both primary and secondary sources are used. These sources of data are described below.

Primary Sources
Primary data is information collected directly from first-hand experience. This information is unique to the particular researcher and case study and is unavailable to others before it is published. Primary data is collected through interviews and observations (Merriam, 1998). According to Yin (2003) interviews are the most important sources of case study information. They can provide exact answers to the research questions. In case studies interviews most commonly have open-ended nature. This type of interviews gives an opportunity to ask key respondents about the facts and opinions about certain subjects. The respondents can provide insights into some events and give propositions for further inquiries. As far as most of the case studies are about human affairs, interviews become essential sources of case study evidence. However, being verbal reports only, interviews might be a concern for the problems of bias, poor recall, and poor or inaccurate articulation. In this thesis the primary data is collected through interviews with employees and management at Volvo CE Region International and representatives from Volvo CE international dealers. The interviews are semi-structured and open-ended in nature. The semi-structured interviews are the most suitable for collecting general information and enhancing the understanding of the general case. The qualitative approach gives the respondents an opportunity to elaborate on the questions and receive information about other possible interviewees. Open interviews have its purpose to increase the understanding of the specific process in the case company. These interviews are unstructured and intend to guide an interviewee by the topic but not to ask specific questions (Merriam, 1998). In this thesis both personal interviews and phone interviews have been conducted. Phone interviews save time as well as financial resources. However, due to inability to see the respondent, information provided during the interview might be rather biased. Since the respondent is not visible, a phone call is more abstract than a talk between four eyes and the body language is missed out (Jacobsen, 1993). Among the interviewees there were both owned and independent dealers. Besides, Volvo CE management was interviewed, as well as consultants working for Volvo Group and independently shared their knowledge. Phone interviews have been conducted with Volvo CEs independent dealer in Chile as well as owned dealers in Russia and Turkey. In Chile, Nelson Vinegars (Commercial Manager), Jorge Rios (Marketing Manager) and Rodrigo Galleguillos (Salesman) contributed to the research. During the interview with Chile, Rodrigo Konda (Global Key Accounts in Latin America), assisted as a translator. In Russia, Andrei Beskibalov (Functional CRM Manager & External consultant) shared his experience and knowledge in working with the system. For the Turkish market, Ebru Celkan (CRM Manager) and Tolga Polat (Customer Support Area Manager) together with Eda Ertur (Customer Support Administrator) in a joint interview, contributed to the study. Personal interviews have been held with Karen Costello (Sales & Software Manager, Volvo IT) and Michael Thrngren (IS/IT Program Manager, Volvo CE Region

International). The questionnaire has been answered via e-mail as well, by Jarmo Sunderland (representing Volvo CEs independent dealer in Finland) as well as by LarsGunnar Larsson (Vice President Business & Quality Development, Volvo CE Region International).

Secondary Sources
Secondary data is information collected previously for other purposes and is not casespecific. However, it can be relevant to the studied problem. It is useful for gaining general knowledge on the subject. Secondary data is less expensive and less timeconsuming to gather than primary data. It can be found in journals, magazines, books, documentation, and on the Internet. Secondary data is divided into internal and external data. The internal information is found within the case-company and includes administrative reports, proposals, annual reports, and some other documents published within the company. The external data is collected from various media sources and not necessarily relates to the case- company or to the case being studied. In this study both internal and external sources of data are used. Internal data is the basis for understanding the problem and evaluating how deep the subject has been already studied. External sources are especially used in the theoretical framework in order to gain information on specific topics, which is impossible to get from internal sources. The use of secondary data is expected to raise the validity of the thesis, which is discussed later on (Merriam, 1998).

Quality of Research
Qualitative research is often criticized for the lack of validity and reliability, which are cornerstones of any research. This criticism derives from the relative freedom and lack of structure and rigor characteristics of the qualitative research methods (Ruyter & Scholl,1998). In order to ensure the validity and reliability in the qualitative research it is vital to conduct the investigation in an ethical manner. According to Merriam (1998) validity and reliability can be accomplished through careful attention to a studys conceptualization and the way in which the data were collected, analyzed, and interpreted as well as the way in which the findings are presented. Yin (1990) suggests evaluating three criteria: internal validity, external validity, and reliability.

Internal Validity
In a quantitative sense validity is referred to as the correctness of the research constructs integrated in the project. Qualitative research, in contrast, cares about the issue how to collect information in a way that optimal operationalization is achieved at a later stage in the study. In-depth insight of the qualitative research gives an opportunity to achieve accurate use of the research constructs. Thus, the validity of qualitative research is primarily concerned with the fact that constructs are strongly supported within the real-life context. The significance of the results is related to the respondents everyday reality (Ruyter & Scholl, 1998). According to Merriam (2009) internal validity handles the question of how research findings manage to match the reality. Furthermore, in every research internal validity depends on the meaning of reality. Covering an objective truth or reality is not possible for the qualitative researchers, although in order to increase the internal validity the author states six basic strategies: prolonged engagement, triangulation, peer examination, member checks, and negative case analysis and audit trail. In this study

triangulation, member checks and peer examination have been applied to shore up the internal validity. Triangulation characterizes the usage of various investigators, sources or methods to validate the findings. Merriam (2009) refers to four types of triangulation: the use of multiple methods, multiple sources of data, multiple investigators, or multiple theories to confirm emerging findings. In this thesis mainly multiple methods of data collection and multiple sources of data will be used in order to provide consistent data that match the reality as understood by the respondents. When findings from an interview can be checked against observations and documents, the triangulation has been employed by various methods of data collection.

External Validity
According to Merriam (1998) external validity concerns whether the findings of a study can be applied to other situations and how generalizable the results are. In order to enhance external validity three different strategies can be applied. These are rich, thick description, typically or modal category and multisite designs. Within the first strategy, rich thick description, the purpose is to provide enough description so that readers will be able to decide how equivalent their situations is in comparison to the research situation and thus whether findings can be transferred. Regarding the typically or modal category, the main idea is to describe how typical the issue is so that receivers can make comparisons related to their own situations. By using a multisite design, numerous sources that maximize variety has been applied in order to increase the usage of the results to a wider range of readers. Regarding this study, time constraints and sample size can create concerns on the external validity of the research. However, it can be argued that industrial equipment companies operate in more or less the same way. Therefore, the results gained from the study of Volvo CE, as a case company, can be valid for the other companies in the same industry as well.

Reliability
According to Merriam (1998) reliability concerns to what extent the findings and conclusions can be replicated. Furthermore, it is the consistency between the data collected and the result found that makes a study reliable. Reliability is based on the presumption that there is one particular reality and by studying it frequently the same results will be found. The reliability of qualitative research, in terms of comparability of reproducibility, is often put under discussion because of the systematic approach, which reduces reliability of qualitative research. However, it can be argued that this type of approach is needed in order to get a closer in-sight on the points of research interest. A systematic operation can be achieved by linking research results to theoretical models and concepts. Besides, the reliability of qualitative data can be based on accurate description of the steps taken in the collection and analysis of data, so that other researchers could trace back the original research design (Ruyter & Scholl, 1998). In order to ensure reliability of the performed study, the information gained in the course of research has been supported by supplementary data and checked with the respondents.

Analysis
In this chapter the analysis based on the theoretical findings is performed. First, the main theories are introduced and after, a comparison with the results of the empirical study is done. The analysis covers the following topics: channel relationships, customer value including customer as an asset and CVM, and finally, CRM in terms of strategic framework and pitfalls and unknowns.

Marketing Channels
The literature implies that a strong channel network requires many years of constant attention to develop and maintain relationships between all the players involved. If the dealers know their customers well it works as an effective market barrier to competitors. Volvo CEs dealers see the critical aspect of knowing their customer in order to be able to serve them in the best way. Besides that, trustful and effective relationships between dealers and manufactures are a competitive advantage for the company. CRM is a tool which influences relationship aspects in the channel networks. Based on the study on the role of trust and co-operation in marketing channels, the literature implies that in dealer-manufacturer interactions trust is built on overall relationships rather than on particular episodes. The foundation for these relationships is satisfactory performance over time. Besides, trust occurs in situations where it has an opportunity to develop naturally, not regulated by contracts or written rules. This idea is supported both by owned and independent Volvo CE dealers. Moreover, the dealers agree that trust is not inevitable in trading relationships and it is not the basis for cooperation. Cooperation always presents in ongoing relations and it is a product of coordination of actions by the parties involved. In the literature it is suggested that the value-added activity of the channel is the flow of information. Within Volvo CE there are numerous things that make the relationships effective, such as mutual budgets, forecasts, regular reports and IT solutions. The channel relationships within Volvo CE are very strong because all the dealers are connected to Volvo Group. In Turkey, where they do not have stock management, the relationships are even stronger because they need to get updated information from Volvo CE continually. The accessibility to common information makes Volvo CE more competitive in the market. There are several theoretical perspectives for understanding marketing channel phenomena. For example political economy paradigm and the relationship marketing paradigm involve such issues as long-term manufacture-distributor relationships and the

power-dependence balance. High degree of partnerships involves interdependence, which is not evenly balanced. The concepts of power and dependency are critical for channel relationships. In order to create dependence in marketing channels different types of power base are used. The division is made between coercive (rewards and punitive actions) and non-coercive (expertise, information, recommendations) power bases. Coercive power base is grounded on the idea that a manufacturer can provide rewards to dealers, or is able to correct if dealers fail to meet the demands. It is aimed at influencing actual behavior. Whereas noncoercive power base is founded on the belief that supplier has special knowledge and conditions to propose that are not accessible from other manufacturers. Regarding the case of Volvo CE, the level of dependency and the type of power vary within the marketing channel. This phenomenon can be explained by the relationship difference between Volvo CE and its owned and independent dealers. The degree of freedom in the relationship between the manufacturer and independent dealers is rather high, and this relationship can be characterized by non-coercive power base. Whereas the owned dealers are more dependent on Volvo CE and coercive power can be used. Since dealers are dependent on manufactures the situation is vulnerable when things within an organization change. When Volvo CE decided to start implementing a CRM system, the dealers did not have a choice because it was the decision from Volvo CE management. The dealer would probably not implement a CRM tool without the directions from Volvo CE. Since the dealers must pay for the system themselves, Volvo CE needs to motivate why they should implement a CRM tool. Another research is focused on two distinct approaches that influence channel relationships. These approaches are behavioral and economic. A common base for both approaches is that relationships are created and maintained as a result of interdependence between channel members. From the behavioral point of view the relationships between manufacturers and dealers are a political struggle in which power and dependence of each party control the behavior of others. While economic approach views relationships as a search to allocate distribution responsibilities and role performance tasks in a way when costs are minimized and profits are maximized. Economic struggles can impact the way products and services are valued, and dependency of parties influences channel relationships. For example, if a manufacturer is not able to fill orders accurately, meet promised delivery dates or stick to shipping instructions, then he has little influence on dealer decisions. On the other hand, if a vendor provides steady order cycle and meets delivery dates, dealers are able to minimize outs and customer dissatisfaction. It can be encouraging for dealers to surrender a portion of their autonomy to the manufacturer in exchange for quality logistics. For Volvo CE and its dealers both owned and independent, economic struggle is rather relevant. The implementation of the CRM system is perceived by many dealers as an attempt to increase control over their business activities by the manufacturer. However, the system coordinates the work of all the departments, connects sales and after sales offices, and contributes to the improved logistics process. Therefore, the efficiency and effectiveness of marketing channel relationships is increased. Within a marketing channel the relationships are very vulnerable due to time and relationship dependencies according to the literature. Time-dependence is explicated by

chronological or sequential dependence between companies business activities in marketing channels. Relationship dependence refers to the communication factors influencing interaction process between companies in marketing channels. Regarding time dependency within the marketing channel, the CRM tool makes it possible for both manufactures and dealers to forecast the needs and the demands of the customers. The system implies to be more efficient and saves time for preparing and closing more deals. The access to information is simplified and all business activities in the marketing channels can be conducted faster and in a more effective way. Simultaneously, the numbers of delivery delays will be decreased. Concerning the relationship dependency, the CRM system simplifies all the processes when information is to be shared.

Customer Value
In the Theoretical Framework it was made clear that in order to create and deliver customer value a complete understanding of customer requirements, preferences, and purchasing processes is important. An important component of relationship marketing is giving value to customers and at the same time getting value from them.

Customer as an asset
The theoretical study shows that customer loyalty is very important for the dealers. The loyal customers usually focus not on the price alone but see the relationships with a company as value for money and act as advocates for the company helping to attract new customers. Although loyal customers are a scarce resource, they are a source of value. That is why companies have to set maximizing customer value as a measured and clear goal. Moreover, higher levels of customer satisfaction lead to better customer loyalty, which results in improved company performance. From the interviews with the dealers it was found out that customer loyalty and establishing long-term relationships are the things they value the most. One of the dealer measures the customer loyalty every year and customers who buy from the company at least every twelfth month are considered to be loyal. In order to improve the relationships and retain the customers, they build retention rate KPI to CRM. Furthermore, the dealers expect their customers to come back when they buy their next machine. Having good relationship with the customers usually increases their loyalty. However, in some countries it is rather difficult to find loyal customers which probably have to do with cultural differences. The dealers regard loyal customers as customers who call when they need to buy a new machine, where Volvo must be the first choice. The customer loyalty can be increased by learning special things about the customer. Activity reports is a tool that helps the dealer to retain and follow their customers. Another factor they highlight is the importance of providing high-quality products and services. This is also emphasized in the theoretical chapter, being able to add value and enhancing the standard of the relationship both dealers and Volvo CE need to focus on quality in a wider perspective as well.

CVM
In accordance to the theoretical framework, the most important part of value creation is careful market segmentation since it allows tailoring the offer to the needs of specific segments. In order to improve customer lifetime value it is significant to be aware of the existing profitability of customer segments and understand the potential profitability of those segments. There are two questions to ask in order to find the right solution for the customer; what does the customer value and what is the value of the customer. The input

from the customers then helps the company to refine the products and services in compliance to the customer needs and thus build customer loyalty. The dealers have rather similar customer segmentation process where customers are segmented in the CRM system according to the Volvo CE segment key. This information from Volvo CE is mandatory transferred into the CRM system. This method makes it possible to get valuable and specific information rather quickly. Proper customer segmentation can be a competitive advantage of the dealer. Also, the dealers bases customer segmentation on the machine park where the sales people add appropriate information. During crisis time it is especially important to find a solution to be close to the customers and never lose them. The dealers have different ways of grouping their customers. One dealer has five types of customers in the system, which are identified by the number of machines they have and how often they return. Another dealer, conversely, has three different ways of segmenting their customers. In order to retain the customers they have different rules for all the segments. According to the literature many companies seem to understand the importance of customer retention, although just a few measures the economic value of their customer retention strategies. Retention rate is used to measure customer turnover and is significant for the creation of value. Research has shown that increase in retention rate from 80 to 90 percent doubles customer lifetime from five to ten years. The theoretical framework states that receiving customer feedback enables the supplier to remedy occurring problems and change customer requirements and preferences if it is needed. To know how service quality is understood in the eyes of customers appears to be a crucial factor of business success. The main purpose of any customer service strategy is to increase customer maintenance since retained customers are more profitable then new customers. However, the retention strategies must also be different. For example, loyal customers are less price sensitive; therefore they should be retained through incentives other than price, which can be special recognition and premium service. The empirical study shows that the customers value the reliability that Volvo CE stands for. The customers rely on the company and consider Volvo CE to be a partner that provides products that help them to perform daily work without problems and failures. Volvo takes responsibility for the customers. If a machine stops it is the companys responsibility to solve the problem as soon as possible since the customer lose money every minute the machine stands still. According to a study that one of the dealers did in 2007, the customers put the highest value on the attitude they get from the company, personal contacts, and the availability of spare parts.

Customer centricity
The theoretical study shows that, in order to operate successfully on the global market, organizations shift to a more customer-centric focus and they are required to respond to customer demands effectively. The CRM model, being a customer-centric by its nature, places customer needs as a priority and involves understanding customer completely, lining up organizational capabilities to deliver high value to customers, and facilitating information both outside and inside the organization. A customer-driven culture requires form the companies many organizational changes. Information is spread not only among internal resources but also to every part o organizations value chain. This value chain includes extended supply chain encompassing

dealers and manufacturers leaped with a well-linked delivery chain to customers. This type of relationship has many advantages, which are: improved internal and external communication, long-term customer relationships, removal of multiple systems and contradictory data, and improved customer service. Volvo CE understands that before implementing CRM it needs to develop a deeper customer-centric view. It can help to attract, develop, and retain valuable life-time customers. It can be attained by delivering extraordinary customer experience through enhancing buying and ownership experience and leveraging customer information for a positive customer experience. To achieve these results a customer oriented culture needs to be built up within Volvo CEs dealers. This type of culture fosters relationships with the customers and assumes respecting customers time, interests, individuality and privacy. CRM is an extremely helpful tool for providing 360 degree unified view of the customer and, consequently, competitive advantage for Volvo CE and its dealers. Such view provides single unified face to the customer regardless of channel and promotes seamless, collaborative process with dealers. Then, retailers view of the world can be described as One customer- one business and mutually beneficial business relationships that build trust and deliver business results are created.

In order to investigate how far Volvo CEs dealers have come on their way to become more customers centric, Costellos general model has been applied. In the model below, the dealers have been situated according to where they are in their process. The dealer in Chile has gone through most of the evaluation processes and developed a customer centric view. The CRM tool was implemented in Chile ten years ago which implies that they have a rather advanced system today. Finland has also come relatively far in the implementation process, where all the channels are interconnected. They have come to the step where they use the

CRM tool in after sales. Russia and Turkey are in progress, but they have not come as far as the other dealers. They still add functions to further develop and improve the CRM tool. Now they have a clear channel focus and as Finland already did, they aim to interconnect all the channels. However, they started implementing the tool many years after Chile and Finland.

The Evolution Process of CRM adapted to Volvo CEs dealers, based on Costello (2010)

Purposes
Analyzing the theoretical framework, the main purpose of the CRM process can be stated as building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. Furthermore, the process manages all aspects of acquiring, keeping and growing customers. Volvo CE understands that before starting the CRM project a company needs a clear strategy with a long-term vision and concrete goals. The strategy can vary depending on

the scope of the project, e.g. whether the company wants to use customer information within a particular market or globally. The main reasons why Volvo CE wants to implement CRM tool and philosophy is a need to improve the process of helping dealers to develop the way they do business. Today, there is no tailor-made solution to offer the dealers. The initial idea where CRM has to lead the company is a tailor-made solution reusable for different types of dealers. From the interviews with Volvo CE dealers it was found out that the purposes of the CRM implementation vary from dealer to dealer. There are many factors that create a necessity for initiating a CRM project. The main purposes are as follows: To have a better control of the machine population To simplify customer management process and have better control over the customer base and sales people who work with the customers directly To collect quality information about the customers, to build a customer database To increase sales

Implementation
The theory proposes that a CRM process can be divided into two parts: the strategic process and the operational process. The strategic process involves the structure for how relationships with customers will be developed and managed. Within the operational process segmenting customers and implementation take place. Also, from the literature studied above, it is known that CRM set up can be characterized by five generic processes, which are: (1) strategy development process, (2) the value creation process, (3) the multichannel integration process, (4) the information management process, and (5) the performance assessment process. All these processes are described in the theoretical framework chapter in detail. Automotive CRM strategies and their implementation are multi-year programs. CRM journey can start in any of the sales, service, or marketing domains. Volvo Group is in need of such a program in order to build on the success it has today. Based on the experience of Volvo TC, five phases of the implementation process is identified. The first one is CM Roll Analysis out, which includes data gathering. The second phase is CRM process definition; this is the stage when the knowledge is obtained. Then, sales process integration takes place followed by after-market process integration. Finally, the company turns into a customer focused organization with integrated strategic plan and CRM.

Roles
From the theoretical framework it is known that effective CRM implementation requires coordination of channels, technologies, customers, and employees. Usually, employees are paid little attention in the implementation of the CRM activities. Hence, it is very important to address the role of employees and their involvement in the gathering of customer data and to show them how it positively influences the firms performance. Volvo CE realizes the importance of mapping and addressing roles within the process. However, there are two perspectives on what individuals are considered to be the most critical for the project. On the one hand, management and top management (vice president, marketing director) have the greatest impact on the project, since they are decision-makers and if they are involved, managers and sales managers understand that the project is supported from the top. On the other hand, employees who touch the customers (sales people, sales manager and dealer manager) are of greatest importance for the project, as far as they are the primary users of CRM. Volvo CE dealers, based on their experience, argue that involving right people in the project is crucial and who these right people are, depends on the scope of the project.

However, all dealers consider the key users of the tool as the most important people in the implementation processes. Although, the role of CRM manager/project leader should not be underestimated, since he/ she is the one who coordinates all the activities. Getting clear directions from the management is a key to successful CRM implementation.

Outcome
Referring to literature, incomplete use of CRM metrics can be a threat to developing of core rigidities leading to a long-term failure. One of the key components of CRM is a good measurement process. However, most of the measurement systems are focused rather on the outcome measures than the dual value creation process. CRM enables a firm to collect a lot of measures, and it is important that these measures connect to the value creation process. Volvo CE does not have a common measurement system, since success can be measured at different levels and from different perspectives. The measurement can be both quantitative and qualitative. Thus, qualitative results are more significant. The management understands that success should be measured from the perspective of dual value creation. If the sales people perform well, it results in higher sales rates and higher customer satisfaction as well. The majority of Volvo CE dealers do not have measurement tool and evaluate the success based on the initial purposes of the project. Since the main purposes were to collect accurate and complete customer data, increase sales, and boost customer satisfaction, the dealers consider these issues and make conclusions out of the achieved results. The dealers who have more experience with the CRM, measure performance and customer cover in the market, and use these indicators as success measures. If to specify in numbers what sales increase would be a sign of successful CRM implementation, the dealers consider a 10-25 percent raise to be a perfect outcome.

Benefits
It has been proved by many sources in the literature that CRM brings many benefits to the organizations which use the tool. Through CRM systems managers have the ability to better distribute scarce marketing resources, synchronize operations, marketing as well as service efforts and update the value of relationship-specific market offerings? Besides, CRM enables management to collect customer data quickly, identify the most important customers, and offer customized products and services that could increase loyalty. Due to the competitive pressures, CRM has become an important business process. Moreover, CRM has several advantages over traditional mass-media marketing. The tool helps to decease advertising costs; simplifies targeting specific customers by focusing on their needs; gives possibility to track the effectiveness of a given campaign easily; creates competition for customers based on service, not prices; prevents overspending on lowvalue customers or under spending on high-value ones; speeds the marketing cycle; and finally, improves use of the customer channel. Volvo CE dealers admitted that, in spite of the difficulties they met while implementing CRM, they experienced a lot of benefits working with the tool. Among the main advantages can be listed better control of the customers and machines, and also, better focused campaigns. These reimbursements result in a profit gain and higher levels of customer satisfaction. In a more detailed way the rewards of CRM can be described from the managers and sales person perspectives.

For the managers the system makes it possible to have complete information of all the closed deals as well as the ongoing deals. It also gives the possibility to achieve better control on the sales forecast, to control the machine stock and to do necessary adjustments. The CRM tool is also helpful when it comes to having better control and a whole picture over the sales force agenda. The tool makes it easy to follow where the sales people are and what they are doing. The main advantage for the salesman is a better time management by having better agenda, which allows the salesman to be more efficient which results in more time to go across details about the customers and sell more. Also, CRM helps to spread customer information throughout the organization. The CRM system makes it possible to interact between front-office (sales department), back-office (logistics, commercial administration) and after-sales department. The interaction between the departments is simplified.

Pitfalls and Unknowns

According to the theories studied previously, there are many possible pitfalls in implementing CRM. The main reasons why the things go wrong are anchoring (CRM project should be anchored within a high level of organization and outside the IT department), resource needs (resources needed for the CRM implementation are often underestimated), unrealistic expectations, and lack of sufficient training (end users need to be properly trained and instructed). Successful implementation needs a strong business focus to ensure change in processes, organization, people and culture. If work conditions are left unchanged, an introduction of the system can hardly bring any improvements. Therefore, changes of processes, organization structure, people and culture are necessary. Volvo CE managers consider implementation of CRM tool and philosophy to be a challenging task. There are three main concerns can be identified regarding the introduction Analysis of CRM within Volvo CE dealers. The main challenge is in finding the right strategy for different markets. Since Region International covers many diverse markets there should be a strategy trade-off between being customized for several markets or having a single solution for the entire region. This idea is also highlighted in the theories. Since the CRM process depends on data, the most important technical deliberation is to create a single, operations- focused, integrated logical database. Other essential elements include software for database, data mining, decision support, and campaign management tools, and call center software and hardware. The set up of the databases is the biggest technology problem for many organizations. This process is not only time-consuming and expensive, but it is often difficult to reconcile as well. Another challenge can be sponsorship, especially taking into consideration that Volvo CE not invest in the project and this is dealers responsibility to finance it. One more big challenge is changing the way people work. Continuous update of the system information requires a lot of work from the users. Usually, sales people are very resistant to implementation of the CRM due to the fear of new, fear of losing a job and being substituted with a system, and, of course, fear of increasing responsibility. The ideas mentioned above were confirmed during the interviews with companys dealers. The dealers confirmed that the biggest challenge when implementing the CRM system is to get everyone to use it by showing the benefits in a long run. Therefore, it is important for the management to control and be persistent in forcing employees to work with CRM, as well as to show good examples and fast benefits. Of course, employees have to be motivated to use CRM; therefore the more they are involved in the process, the more they are interested.

Trainings are of big importance in order to increase employees motivation. Among the other challenges when starting a CRM project the dealers mentioned defining the goals clearly for the system implementation. If the goals are not clearly defined, the result will not be clear. One more task the dealers find to be a difficult one is to limit the scope of the system where all the stakeholders should be involved and all the goals should be approved by them. The scope should be defined in documents and there is no need to change the scope during the project. The users and the project group should be informed and aware of it. It is suggested in the literature that effective CRM implementation requires coordination of channels, technologies, customers, and employees. Volvo CE dealers, based on their experience, mention the following things as crucial for the success of the project. In order to avoid pitfalls the project has to be managed properly and all the goals and requirements should be documented and approved by the managers. The manager needs to ensure that the system is beneficial for the salesmen. It is important for the users to know that the system is implemented in order to make their work easier. It is critical to clearly understand and have knowledge about how the CRM system works and explain how to use it in a simplified way in order to attract the employees. Moreover, it is of great importance to train the people, they must understand how to utilize the system. The employees must know that the system will decrease their manual work.

Conclusions
In the following chapter the research questions are answered. First, the answers to the sub-questions are given what makes it possible to respond to the main research question. All the answers are based on the findings gathered during the case study research.

Conclusion
The case study was conducted within Volvo CE Region International and therefore the result of the research is related to the company. However, the conclusion can be applicable to other MNCs operating in the same field since Volvo CE is a big player on the market and its practices are relevant to other similar companies. Thus, the conclusions are generalized.

Research sub-question 1 How can an MNC bring more value to its customers with the help of a CRM tool & philosophy?
According to the case study research, a CRM tool brings a lot of value to the customers. The CRM system facilitates the sales people to save time and work more efficient with their customers. The sales men have a lot of detailed information about the customers that makes it easier meeting their individual needs and demands as well as offering tailor made solutions for the customers. In this way, the CRM system contributes to an increased service quality and customer satisfaction. Moreover a completed customer database, with all necessary data collected, makes it easy to overview, follow up and control the customers. In this way, the CRM system helps to spread customer information throughout the whole organization that all departments can benefit from. Sharing information in this way allows the organization to act more effectively and flexibly towards their customers. Another important solution of the CRM tool is the function of accomplishing careful customer segmentation in order to identify the most important customers and target them in a proper way. The system also makes it possible to achieve better focused market campaigns to reach the right customers. Other improvements related to the implementation of the CRM tool are better control of the sales forecasts and the possibility to control the machine stock. The enhancements enable the company to meet customer requirements faster and thereby increase the customer satisfaction.

Research sub-question 2 How can an implementation of a CRM tool & philosophy by the dealers deliver more customer value to an MNC?
The case study has shown that with the implementation of the CRM tool and philosophy an MNC can benefit in two ways. First, CRM contributes to the improvement of the relationships within the marketing channel. Second, the tool helps to increase customer loyalty and their profitability. These two aspects are the main advantages, which an MNC attains after the implementation of CRM. The research has proved that marketing channel relationships are enhanced when the dealers start working with the CRM tool. The implementation of the CRM system is perceived by many dealers as an attempt to increase control over their business activities by the manufacturer. However, the system coordinates the work of all the departments, connects sales and after sales offices, and contributes to the improved logistics process. Regarding time dependency within the marketing channel, the CRM tool makes it possible for both manufactures and dealers to forecast the needs and the demands of the customers

and therefore save time for preparing and closing more deals. It leads to the decreases number of the delivery delays. The access to information is simplified and all business activities in the marketing channels can be conducted faster and in a more effective way. Concerning the relationship dependency, the CRM system simplifies all the processes when information is shared. Therefore, the efficiency and effectiveness of marketing channel relationships is increased. As it was mentioned above, another benefit an MNC gets from the CRM tool and philosophy is loyal and profitable customers. The dealers regard loyal customers as customers who call when they need to buy a new machine and Volvo CE is their first choice. Providing high-quality products and services is clue to customer loyalty. Also, the customer loyalty can be increased by learning special customer needs and preferences. Since the CRM system includes all customer information, it is easy for sales people to meet customers individual needs at the right time. If the customers are satisfied with their buying experience, they usually come back; therefore the retention level is increased. Moreover, loyal customers are considered to be more profitable. The sales people can follow their customers in the CRM easily and retain the right customers, which bring profit to the company. The tool Conclusions simplifies the work of the sales people, what gives them an opportunity to create positive buying experience for the customers and gain profit for the company.
Conclusions

Research sub-question 3 How can an MNC motivate its dealers to implement a CRM tool & philosophy?
In order to motivate the dealers to implement a CRM system it is fundamental to clarify the purpose of the tool and the philosophy. The dealers must understand why they need to implement the tool and also in what way they can benefit from using it. The purpose of the CRM implementation will vary from dealer to dealer. According to the research study, the main purposes of implementing a CRM system among the dealers are to have better control of the machine population, to simplify customer management process and have better control over customer base as well as the sales people. To collect quality information about the customers in order to build a complete customer database and to increase the sales are also purposes that the dealers highlighted. In order to encourage and motivate the dealers the benefits of the system must be stressed. The CRM tool will simplify the dealers work in many ways. It enables a company to collect customer data quickly, identify the most important customer and offer customized products as well as services. From the case study research, the main benefits of a CRM system are better control of the customers and the machines as well as better control on the sales forecast and the ability to control the machine stock. Also, the CRM tool enables better focused campaigns and makes it possible to spread customer information throughout the whole organization. Furthermore, managers will have complete information of all the closed and ongoing deals and the tool enables the managers to follow up the sales people easily. For the sales men, the CRM tool makes it possible to have better time management. Moreover, the challenges can be considered, in order to estimate the costs being implied in the project. Based on this information cost and benefit analysis can be conducted. If the

benefits exceed the costs, it will be easier for an MNC to motivate its dealers to implement the system. In order to achieve the best possible outcome, the implementation process requires a clear strategy with a long-term vision and concrete goals. Moreover, before implementing a CRM tool a company needs to develop a customer-centric view since it can help to attract, develop and retain valuable life-time customers. Also, formation of a skilled implementation team is important for the outcome of the project. Mapping and addressing the roles of employees and their involvement during the CRM implementation is critical. In order to influence and convince the employees it is important to show the positive influence the CRM system has on the companys performance. There are two perspectives on what individuals are considered to be the most significant for the project. Management and top-management have great impact on the project since they are decision makers. Also, employees who touch the customers are considered to be very important as far as they are the primary users of the CRM tool. In order to convince and motivate the dealer to implement a CRM tool it is important to have a clearly defined purpose, highlight the benefits, have a strategy with a long-term vision and concrete goals as well as well identified roles within the process.
Conclusions

How can an MNC become a more customer centric company by helping its dealers to implement a CRM system?
A customer-centric view helps to attract, develop, and retain valuable life-time customers. It can be achieved by delivering unprecedented customer experience through enhancing buying and ownership experience and leveraging customer information for a positive customer experience. Such view provides single unified face to the customer regardless of channel and fosters seamless, collaborative process with dealers. Then, dealers view of the world can be described as one customer - one business and mutually beneficial business relationships that build trust and deliver business results are created. A customer-driven culture requires from the companies many organizational changes. Information is spread not only among internal resources but also to every part of organizations value chain. This value chain includes extended supply chain encompassing dealers and manufacturers leaped with a well-linked delivery chain to customers. If an MNC adopts this type of culture, it gains many advantages including improved internal and external communication, long-term customer relationships, removal of multiple systems and contradictory data, and improved customer service. The CRM system is customer-centric by its nature. It places customer needs as a priority and involves understanding customer completely, lining up organizational capabilities to deliver high value to customers, and facilitating information both outside and inside the organization. Although, implementation of the CRM system is a time-consuming process, which requires persistence and hard work from all the people involved in it, the system implies many benefits and creates dual value both for the customers and an MNC.

Recommendations
The following chapter introduces the recommendations for the case company based on the analysis and conclusions of the research. There are four major recommendations are performed, which are: develop effective channel management, conduct cost and benefit

analysis, develop a proper implementation process, and develop a success measurement system. The recommendations are developed further in this chapter.
Recommendations

Recommendations
The recommendations chapter starts with the prerequisites for the successful CRM implementation by the Volvo CE dealers. The preconditions for the CRM project include developing effective channel relationships and communicating the benefits and costs, involved in the project implementation, to the dealers. These steps are followed by a more concrete and detailed implementation plan. Finally, an advice on measuring the success of CRM initiative is given.

Develop Effective Channel Management

Many companies face a new challenge today. The majority knows that customer focus is essential for the success; however they ignore the channel and its importance for establishing customer relationship management. From the interviews with Volvo CE dealers it was concluded that Volvo CE and its dealers recognize the importance of channel management. However, they cannot define what makes the relationships in the channel to be effective. Therefore, the channel strategy should be one of the key issues to be addressed in general, as well as when implementing CRM tool and philosophy. Besides, in a channel management it is important for Volvo CE to have control of its dealers and how they communicate with the customers. The degree of control over a dealer influences the way the dealer represents the product and the attached service on the market. For example, a high degree of after-sales service demands on Volvo CE dealers to support the image of the manufacturer and demonstrate expertise in the product as well. From the customer perspective the intangible value of the machine can be increased, if the dealers manage to provide the required expertise and service quality. While working with the owned dealers, it is rather easy to get an access to market data and customers voice. However, it is quite difficult to control independent dealers and the environment in which the machines are sold and which is part of the entire image the customers buy. For the reason that the CRM tool enables the access to customer and market information throughout the organization, first of all Volvo CE needs to motivate its independent dealers to implement the tool, since the independent dealers are less organized. CRM implementation within independent dealers will increase Volvo CEs control over the channel. Furthermore, Volvo CE can improve its channel management by providing support to its dealers. A good support program should cover such areas as finance, customer service, order/delivery and information/marketing. From the first look it might seem that dealers get the sole benefit. On the other hand, Volvo CE attains the influence on the way the product is presented to the customers and, besides that support gives an opportunity to bind the dealers closer to the manufacturer. Especially with the independent dealers, support can guarantee incentives for the dealers to work with Volvo CE and be loyal to the manufacturer. This type of relationship creates close cooperation and partnership. Providing financial support during the CRM implementation process can be a step forward on the way to closer cooperation with the dealers. Considering the facts mentioned above, it becomes obvious that appropriate channel strategy and effective channel management is the key to enhancing revenue opportunities and creating competitive advantage for Volvo CE Region International.

Identify Benefits and Costs to the Dealers

Implementation of a CRM tool and philosophy requires every organization to consider a number of steps and ensure that each of them is cost justified and leads to effective CRM employment. Evaluation of advantages and disadvantages in the form of costs and benefits of the project should not be neglected. With the implementation of CRM it is common that the pitfalls occur, as it was mentioned in the empirical study, 60 percent of the CRM projects fail. It might discourage Volvo CE dealers to implement the tool. While evaluating the benefits and communicating them to the dealers, both owned and independent, Volvo CE can divide them into following categories: Decreased marketing costs: CRM allows conducting better customer segmentation. When the dealer knows its customers, their preferences and needs, it can propose different pricing options to them. It results in more cost effective marketing program in the longrun. Increased sales: By having all the data about the customers and the machines sales people can target their customers in a more effective way. It also results in a better time management and possibility to close more deals. Improved flow of information throughout the organization: CRM helps to spread customer information throughout the organization. The CRM system makes it possible to interact between front-office (sales department), back-office (logistics, commercial administration) and after-sales department. The interaction between the departments is simplified. Better targeted offers: Some customers are more loyal than others and some can be attracted by low cost offers and CRM system includes this information. It gives Volvo CE dealers an opportunity to provide more targeted offers and tailor- made solutions for its customers. Increased loyalty: Without CRM it is very difficult to customize offers and create oneto-one relationships with the customers. CRM helps to increase customer satisfaction and care and, as a result, to enhance loyalty of Volvo CE customers. The benefits listed above are essential to be stressed when motivating Volvo CE dealers to start the CRM project. However, for every plus there is a minus. Thus, the costs needed to be evaluated as well. Among the major investments being involved in the project Volvo CE dealers must consider the following:
Recommendations

Develop a Proper Implementation Strategy Set a clear goal

A clear CRM vision, followed by a well-defined CRM strategy, which should be supplemented with concrete goals are preconditions for a successful CRM implementation.
Recommendations

The strategy of Volvo CE dealers should involve three areas that are critical for the outcome of the implementation. First, it is fundamental to understand customer needs and demands. To find out what is important to the customers is the primary goal. Understand the organization is also critical in order to see if the organization is prepared and if they have enough resources to deliver to the customer needs. Understand the importance of continuous improvements of the service quality is also necessary. This can for example be done by establishing promote competition among the sales people and embedded customer service beliefs. Both the vision and the strategy must be clear and fully understood

throughout the whole organization. A CRM implementation is a long journey that requires a step by step strategy. At the same time, it is important to think big and act small.

Motivate employees
Another necessary action to take in an early stage is to involve a larger part of the organization than just the key users. The CRM implementation will imply many changes and the employees require time to adjust to the new situation. Since change causes fear and uncertainty for employees, the management must address and neutralize these concerns. In order to increase the knowledge about the CRM system and in what way it will affect their daily work, the employees should be involved and participate in the development work.

Put emphasize on training and education

CRM systems are built on new ways of thinking. When implementing a CRM tool it is not just a change in process and system that is required, a change in culture and practice is also necessary. Communication is one of the most important elements when it comes to developing understanding for a CRM solution, therefore it should play an active and supportive role. An important component within communication is training and education, which is seen as a prerequisite for a successful project. The training programs should be as interactive as possible and relate to the employees everyday situation. Another advice is to allow the employees to test the new system on their own computer in order to increase the familiarity. By doing this, the employees feel more secure and have more selfconfidence.

Learn from the others

In order to avoid pitfalls and failure Volvo CE dealers can benefit from other CRM implementations. The suggestion is to study both successful and failed implementations to get as much experience and information as possible. To learn from Volvo TCs experience is a great opportunity for Volvo CE. Volvo TCs CRM implementation did not result in a success; they failed to get buy in across the value chain for the vision and failed to understand organizational readiness and differences per market. Besides, they built the process from a system perspective and not from a customer/sales perspective.

Offer Sponsorship
Another important aspect to consider is offering sponsorship to the dealers. Since Volvo CE dealers have to invest in the CRM tool themselves, a sponsorship can be valuable. A contribution makes it less painful for the dealer to implement the tool and at the same time it will be easier to motivate the project if Volvo CE offers to share some of the expenses, at least with their owned dealers.

Develop a Success Measurement System

The research has shown that Volvo CE dealers, who have already implemented CRM, do not have a clear measurement system to measure improvements, results, and success. However, it is crucial to have a method of tracking improvements over time in order to evaluate if the CRM initiatives work. Based on the consultants opinion interviewed during the empirical study and on the reference literature, the major proposition regarding the measurement system is to develop a customer scorecard, which intends to track customer performance during a fixed period of time (for example quarterly). The metrics to be included in the scorecard should be defined. They might imply:

 Current Spending: This metric can be based on monthly or annual billings, total purchases, or average order size depending on the dealer. Customer Profitability: It indicates the total customer relationship value across all product lines. Customer Lifetime Value (LTV): Evaluating the success of CRM initiatives it is important to forecast the future behavior of the customers. LTV predicts current profitability over the estimated lifetime of the customer within the segment. Market Penetration for High-Value Customers: The measure indicates the percentage of acquired high-value customer in comparison to the potential customers. Product Penetration: The category shows the proportion of customers within each segment and their purchases within each product category. Customer Retention: Retention statistics should be implied in order to compare performance for the low-value and high-value customers within each segment. Reactivation of Previous Customers: The metric shows the number of previously inactive customers who were encouraged to buy again. Cross Sales: The metric indicates the number of customers who buy in wider categories of products. Up Sales: The metric indicates the number customers buying high priced products. These are the main metrics that Volvo CE dealers can include in a customer scorecard integrated in the CRM system. If the dealers decide to update the scorecard quarterly, they can easily follow the upward or downward trends in key measurements of CRM initiatives.

Bibliography
Articles Bennington, L. & Cummane, J. (1998) Measuring service quality: A hybrid methodology, Total Quality Management, Vol. 9, No 6, pp. 395-405, Carfax Publishing Ltd. Boulding, W., Staelin, R., Ehret, M. & Johnston, J.W (2005) A Customer Relationship Management Roadmap: What is known, Potential Pitfalls, and Where to go, Journal of Marketing, Vol. 69, pp. 155-166, American Marketing Association. Cunningham, M., Ford, D. & Turnbull, P. (1996), Interaction, relationships and networks in business markets: an evolving perspective, Journal of Business & Industrial Marketing, Vol. 11, pp. 44-62, MCB UP Ltd.

Dubois, A. & Gadde, L.E. (2002) 'Systematic Combining: An Abductive Approach to Case Research', Journal of Business Research, pp. 553-560. Evans, G. (2002) Measuring and Managing Customer Value, Work Study, Vol. 51, No. 3, pp. 134-139, MCB UP Ltd. Gassenheimer, J. (1996), Long-term Channel Member Relationship, International Journal of Physical Distribution and Logistics Management, Vol. 26, No. 5, pp. 94116 Groth, C.J. & Dye, T.R (1999) Service quality: guidelines for marketers, Managing Service Quality, Vol. 9, No 5, pp. 337-351, MCB University Press. Lambert, M.D. (2009) Customer relationship management as a business process, Journal of Business & Industrial Marketing, Vol. 25, No. 1, pp. 4-17, Emerald Group Publishing Ltd. Payne, A. & Frow, P. (2005) A Strategic Framework for Customer Relationship Management, Journal of Marketing, Vol. 69, pp. 167-176, American Marketing Association. Pease, J. (2001) New Techniques for Maximizing the Lifetime Profitability for your Customer Base, Business Objects Ruyter, K., Scholl, N., (1998), Positioning qualitative market research: reflections from theory and practice, Qualitative Market Research: An International Journal, Vol. 1, No. 1, pp. 7-14. Ruyter, K., Wetzels, M., LEmmink, J., (1996), The Power of Perceived Service Quality in International Marketing Channels, European Journal of Marketing, Vol. 30, No. 12, pp. 22Svensson, G. (2002), Vulnerability Scenarios in Marketing Channels, Supply Chain Management: An international Journal, Vol. 7, No. 5, pp. 322-333 Young, L., Wilkinson, I. (1989), The Role of Trust and Co-operation in Marketing Channels: Preliminary Study, European Journal of Marketing, Vol. 23, No. 2, pp. 109-122

Books

Anderson C. J & Narus A. J (2004), Business Market Management Understanding, creating, and delivering value, 2nd edition, Pearson Prentice Hall, Upper Saddle River, New Jersey. Brown, A. S. (2000), Customer Relationship Management: A Strategic Imperative in the World of e-Business, John Wiley & Sons, Canada Coughlan, A., Anderson, E., Stern, L., El-Ansary, A. (2006), Marketing Channels, 7 edition, Pearson Education, USA Christopher, M., Payne, A. & Ballantyne, D. (2002), Relationship Marketing Creating Stakeholder Value, Butterworth-Heinermann Elsevier Science, Jordan Hill, Oxford. Donaldson, B & OToole, T (2002), Strategic Market Relationships From strategy to implementation, John Wiley & Sons Ltd, Baffins Lane, Chichester, England. Ford, D., Gadde, L.-E., Hkansson, H., Lundgren, A., Snehota, I., Turnbull, P. & Wilson, D. (1998), Managing Business Relationships, Chichester: Wiley. Grnroos, C. (2000), Service Management & Marketing: a customer relationship management approach, Liber Ekonomi, Malm.
th

Gummesson, E. (2008), Total Relationship Marketing Marketing management, relationship strategy, CRM, and a new dominant logic for the value-creating network economy, 3d edition, Elsevier Ltd, Oxford, UK. Jacobsen, K. J (1993), Intervju Konsten att lyssna och frga, Studentlitteratur, Lund. Kotler, P. & Armstrong, G. (2008), Principles of Marketing, Pearson Prentice Hall, Upper Saddle River, New Jersey. Mahin, W.P. (1991), Business-to-Business Marketing, Allyn and Bacon, A Division of Simon & Schuster Inc., Needham Heights, MA. Merriam, S.B. (1998) Qualitative Research and Case Study Applications in Education, 1st edition, John Wiley & Sons, Inc., San Francisco. Merriam, S.B. (2009) Qualitative Research A Guide to Design and Implementation, John Wiley & Sons, Inc., San Francisco. Scholz, R.W. & Tietje, O. (2002) Embedded case study methods, Thousand Oaks: Sage Publications. Wilkinson, I. (2008) Business Relating Business Managing organisational relations and networks, Edward Elgar Publishing Inc., Northampton, USA. Yin, R.K. (2003) Case study research, 3rd edition, Thousand Oaks: Sage Publications.

Company material Volvo CE Region International (2010a), Develop Dealer CRM in Volvo CE Region International, Internal presentation Volvo CE Region International (2008b), CRM Template for Region International, Internal Presentation Volvo CE Region International (2009c), Dealer CRM Status in Region International, Internal Presentation Volvo CE Region International (2010d), CRM Conference, Internal Presentation Internet Sources Volvo Group Annual Report, 2009, retrieved 10 July 2010 from <http://www3.volvo.com/investors/finrep/ar09/eng/index.html> Volvo Group Annual Report 2009, retrieved 10 July 2010 from <http://www3.volvo.com/investors/finrep/ar09/eng/constructionequipm/introduction.html
>

Volvo Group Annual Report 2009, retrieved 10 July 2010 from <http://www3.volvo.com/investors/finrep/ar09/eng/wordfromourceo/introduction.html> Interviews

Beskibalov, A. (2010, April 28th), Functional CRM Manager and External Consultant, Russia, telephone interview Celkan, E. (2010, April 27th), Marketing and CRM manager, Turkey, telephone interview Costello, K. (2010, April 27th), Sales and Soft Product Manager, Region International, personal interview Ertur, E. (2010, April 28th), Customer Support Administrator, Turkey, telephone interview Galleguillos, R. (2010, April 28th), Salesman, SKC Maquinarias, Chile, telephone interview Larsson, L.G. (2010, May 11th), Vise President Processes and System, Volvo CE Region International, e-mail interview Polat, T. (2010, April, 28th), Customer Support Area Manager, Turkey, telephone interview Rios, J. (2010, April 28th), Marketing Manager, SKC Maquinarias, Chile, telephone interview Sderlund, J. (2010, May 4th), CRM Manager, Finland, e-mail interview Thrngren, M. (2010, April 28th), IS/IT Program Manager, Region International, personal Interview

Appendix Appendix 1 Questionnaire for Volvo CE Region International, Management

Project implementation

What factors create a necessity for initiating the CRM project? How far have you already come on the way to the CRM implementation within Volvo CE Region International? Which dealers (independent and owned) have already started a CRM implementation? How much time are you ready to invest in the project implementation? Which dealers (independent and owned) have already started a CRM implementation? How much time are you ready to invest in the project implementation? How can a formation of a productive implementation team be helpful for the project? Which individuals do you see as critical to involve during the project? What roles are the individuals going to perform during the implementation? What do you expect to be the biggest challenge when implementing a CRM-system? What factors in your opinion can prevent the implementation of the project? How can you avoid the pitfalls in the implementation of the project?

Outcome

What would be the perfect outcome of a CRM implementation? How will you measure the success of a CRM implementation?

Appendix 2 - Questionnaire for Volvo CE Region International, Dealers

Project implementation

What factors create a necessity for initiating the CRM project? How far have you already come on the way to the CRM implementation? How much time was invested in the project implementation? How can development of a detailed project plan be helpful for the CRM implementation? How can a formation of a productive implementation team be helpful for the project? Which individuals do you see as critical to involve during the project? What roles are the individuals going to perform during the implementation? How do you involve employees in the project implementation? How do you motivate employees to participate in the project? What do you expect to be the biggest challenge when implementing a CRM-system? What factors in your opinion can prevent the implementation of the project? How can you avoid the pitfall in the implementation of the project?

Project application

What are the benefits of working with CRM? What are the problem/difficulties in working with the tool? What working regulations of using CRM do you have? How do you educate yourself to use the tool? How do you educate employees to use the CRM tool?

Outcome
Appendix IV

What would be the perfect outcome of a CRM implementation? How will you measure the success of a CRM implementation? How do you see the future development of CRM within your company?

Marketing issues

How strong is the channel network within Volvo CE, Region International? What does make manufacturer-distributor relationships effective in your company? How can the CRM tool help you to improve control of service quality in the channel? To what extent can owned dealers become more dependent on Volvo CE through the CRM? How can CRM help you to build up trust in channel relationships? In your opinion, what do your customers value in your company? What do you value in your customers? To what extent does CRM simplify the customer data collection process? How does CRM help to spread customer information throughout the organization? In what way does CRM assist you in customer segmentation? How does CRM contribute you to distinguish between low-value and high-value customers? How does CRM help you to build up trust in your relationships with the customers? What do you do to retain your customers? How would you describe a loyal customer? How do you increase customer loyalty? How does CRM help you to acquire and use information about your customers? What information about your customers should the CRM package include? In what way can CRM help you to meet and satisfy customer needs? How does CRM influence the current sales? Could you specify in numbers what sales increase would indicate a successful implementation of CRM?

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Table of Contents
1 Introduction ______________________________________________________________________ 3

1.1 Thesis description ___________________________________________________________ 4 1.2 Aim_______________________________________________________________________ 4 1.2.1 Research question __________________________________________________ 4 1.3 Scope_____________________________________________________________________ 4 1.4 Readers guide______________________________________________________________ 5 1.4.1 Definitions_________________________________________________________ 5 2 Theoretical framework______________________________________________________________ 6 2.1 User-based evaluations _______________________________________________________ 6 2.2 User experience research _____________________________________________________ 6 2.3 Internet Research ___________________________________________________________ 8 2.3.1 Internet Marketing___________________________________________________ 8 2.3.2 Online qualitative research methods ___________________________________ 11 2.3.2.1 Online recruitment ____________________________________________ 13 2.4 Summary theoretical framework _______________________________________________ 15 3 Background _____________________________________________________________________ 16 3.1 Developer ecosystem _______________________________________________________ 16 3.1.1 Smartphone application market _______________________________________ 16 3.1.2 Developer portals __________________________________________________ 18 3.2 The Developer Experience project______________________________________________ 18 3.3 Ericsson Labs _____________________________________________________________ 20 3.3.1 Ericsson Labs offerings _____________________________________________ 22 4 Methodological Approach__________________________________________________________ 24 4.1 Execution of the user experience study __________________________________________ 25 4.1.1 Initial approach ____________________________________________________ 25 4.1.2 Actual approach the recruitment process _______________________________ 26 4.2 Interview method ___________________________________________________________ 28 5 Findings ________________________________________________________________________ 30 5.1 Online recruitment __________________________________________________________ 30 5.2 Interview method ___________________________________________________________ 32 5.2.1 Bulletin board _____________________________________________________ 33 5.2.2 Individual interviews ________________________________________________ 36 5.3 Ericsson Labs _____________________________________________________________ 40 6 Analysis and Discussion___________________________________________________________ 44 6.1 Online recruitment __________________________________________________________ 44 6.2 Interview method ___________________________________________________________ 46 6.3 Ericson Labs and its users____________________________________________________ 48 7 Further research _________________________________________________________________ 51

8 Conclusions _____________________________________________________________________ 52 9 References ______________________________________________________________________ 54 9.1 Printed ___________________________________________________________________ 54 9.2 Electronic _________________________________________________________________ 56 9.3 Personal__________________________________________________________________ 57 9.4 Figures___________________________________________________________________ 57 10 11 12 13 14 15
Appendix I Contact letter _______________________________________________________ 59 Appendix II Discussion questions YESYES ________________________________________ 63 Appendix III Discussion questions YESNO ________________________________________ 64 Appendix IV Discussion questions NONO _________________________________________ 65 Appendix V List of respondents _________________________________________________ 67 Appendix VI Skype chat transcripts ______________________________________________ 68

1 Introduction
Technology is no end in itself. It is given a meaning when seen as part of a greater system of products and services. Humans interaction with computers and technology has since the beginning of the 1980s become an object for research. It is important to study users interaction with technology appliances to reduce the gap between the expected and the experienced usage. A method that enables interaction studies is User Experience research. The concept of user experience describes the end users interaction with a product and their perception of the design. The essential part is the users point of view on the overall experience. User experience research may also address the usage of a service. An example of such interaction is developers that are using a developer portal; the developers are the end users of the services and tools offered on the developer environment. The User Experience Lab at Ericsson Research is involved in performing user experience research of applications in new telecom related projects. The research takes place in the early phases of developments to support other departments within Ericsson Research. The responsibility of the Lab is to focus on the users and to interact with them throughout the research process to collect valuable information and to gain knowledge about their experiences and ideas. Ericsson Researchs research projects involve technology that is 2-3 years ahead of the market. Users that are interesting in the research projects are for this reason cutting edge and share traits with early-adopters. Early adopters often influence other users as opinion leaders. They are considered more advanced and use technology tools that regular users are not using yet. It is important for the User Experience Lab to know how to reach and recruit cutting edge users as participants for research studies. The scope of this thesis stems from a project called the Developer Experience project that members of the User Experience Lab at Ericsson Research have been running during 2009. The Developer Experience project focused on the developer as a user of developer platforms. The purpose was to feed the Ericsson Labs team with the knowledge gained from this study. Ericsson Labs is a developer portal that offers tools for developing mobile and web applications. The portal provides facilities such as documentations, tutorials, blogs and forums to support its users in developing and publishing new and innovative applications (Ericsson Labs, 2009). In addition, the Ericsson Labs aims to create a community where cutting edge users and experts from the Ericsson Labs team can interact. This methodology study investigates new ways of reaching cutting edge users for user experience studies.

1.1 Thesis description

The main focus of the thesis work is to form an online-recruitment method and evaluate if the method is satisfactory to succeed in reaching the cutting-edge users. By recruiting respondents and investigating whether it is possible to bring a particular group of users to a suggested online forum, the online -recruitment method can be evaluated. The method will be assessed to investigate whether it is sufficient to get the requested people to the right forum. As part of this method study, recruitment theories need to be considered and evaluated to further investigate how online versions can be applied. Previous investigations and reports that can be of use for this matter will be considered. The study will include an online user experience study to test the online recruitment. A number of Ericsson Labs users will be invited based on certain selection criteria. Familiarity of the developer environment Ericsson Labs is needed in order to better understand the users.

1.2 Aim
The aim is to find new channels where cutting edge users can be located and through this facilitate user experience studies. In addition, it will be an opportunity to assess different qualitative online research methods. The task is thus to investigate how to reach cuttingedge users through a set of online-recruitment methods. In order to reach this aim the following research question will be addressed:

1.2.1 Research question

How can cutting edge users be recruited for online user experience studies? In order to respond to the research question additional research issues will be addressed during the study process: Identify the cutting-edge users! Where are the users found on the Internet? Through what type of online channels, such as social networks, forums, blogs, can the recruitment of respondents take place? What would motivate the users to participate in a user experience study? Can Internet-marketing methods be of use or be adapted?

1.4 Scope
To investigate how to recruit participants for online user-experience studies, this study will start with gaining more knowledge about the cutting-edge users on the Ericsson Labs portal. Obtaining information about the Ericsson Labs users will not only be of value to the User Experience team at Ericsson Research but especially to the Ericsson Labs project team as they will gain knowledge of the active and non-active users on the site. For this reason, the scope will be restricted to only include users on the Ericsson Labs portal. Considering the exploratory use of the site, these users should be particularly innovative and in the forefront of technology. Hence, the registered users on the portal will qualify as cuttingedge users and will function as the database of people to extract participants from. Further 4

delimitation of the thesis research is to not consider recruitment methods that utilize offline elements.

1.4 Readers guide

The thesis is structured to give the reader a basic understanding of the concept of user experience and related research methods. As a start, the reader will be introduced to the reasoning behind usability evaluations and user-experience research. Internet research methods and how Internet marketing practices can be relevant in the recruitment of participants for user experience studies will also be covered. Next is a chapter that aims to give the reader a background to developer environments and Ericsson Labs. The Ericsson Labs users are the study objects of this thesis and as advanced developers they are an interesting group of cutting-edge users to study. There is also a description about the Developer Experience project which is a project that this thesis study originates from. After the background section there follows the thesis methodological description. This section explains the thesis working procedure and the recruitment method as well as the interview methods that were used. Subsequently there is the findings chapter where results from the online recruitment, interview methods and the Ericsson Labs user study will be presented. The analysis and discussion section follow the same order as the findings. Last the reader will find suggestions for further research and the thesis conclusions. In-text quotes that originate from the studys interview objects are referred to as respondent A-K, to respect the agreement of participants anonymity. A list of the participants code names and which interview session they took part in is found in Appendix V. 1.4.1 Definitions The definitions below describe how terms and concepts are interpreted and how they will be used in the text: A user is an individual that is interacting with a service or product via an interface. A user can be a developer that is using a developer portal. A cutting edge user is a user that is more advanced than regular users as well as an early adopter of products and services regular users are not using yet. A cutting edge user influences the regular users through advice and opinion leadership. Early adopter is a term coined by the sociologists Everett M. Rogers. Rogers Diffusion of Innovations theory suggests five adopter categories according to their degree of innovativeness. The level of innovativeness is a relative dimension that describes to which degree an individual is earlier in adopting new ideas than other members of a social system. Early adopters are characterized by having a high degree of opinion leadership. They are often influential since potential adopters ask them for advice and information about the innovations. By adopting an innovation and conveying a subjective evaluation to people in their social networks, early adopters decrease the innovations uncertainty. Early adopters are for this reason sometimes considered opinion leaders. (Rogers, 1995) Ericsson Labs users are users from the developer portal Ericsson Labs. The administrator of the study is synonymous with the thesis author.

2 Theoretical framework
In this chapter, the theory behind the reasoning in this thesis will be presented. First an introduction to user-based evaluations will be given to relate to the user- experience concept. Second, theories about Internet research will be outlined which will lead into the area of online qualitative research methods and online recruitment theory.

2.1 User-based evaluations

The necessity of user-based development has evolved since the 1980s when communications technology started to become accessible to a vast majority of people. The shift from isolated computer rooms to personal desktop computers made it possible also for non-computing professionals to interact with computers in and outside of their work setting. It became more important to provide user-friendly access to computers as the industry became more consumer oriented. It is no longer accepted to wait until the end of the development process to evaluate products from a user perspective. Subsequently, hightech products must already in the concept stage be exposed and evaluated during user evaluations. (Dumas, 2003) User-based evaluations should have the following characteristics: focus on usability participants are end users or potential end users there is some artifact to evaluate such as a product design, a system, or a prototype of either the participants think aloud as they perform tasks the data is recorded and analyzed results of the test are communicated to appropriate audiences (Dumas, 2003) In order for the test to be a valid usability test, the study must include participants that are part of the target market for the product. By creating user profiles, participants may be identified. The user profiles should describe the characteristics that the users share and that separate them. The choice on which user profile to base the study on should be decided by the product managements priorities and not on how easy it might be to recruit the participants. Social skills and persistence is usually an advantage when recruiting for a usability test. (Dumas, 2003)

2.2 User experience research

The Interaction Design Association (IxDA) is an independent non-profit organization that aims to build a community for professionals involved in interaction design. The association engages over 10,000 members who frequently discuss interaction related subjects on their website. The definition of user experience is also discussed. The community appears to have an ambiguous stance towards the concept of user experience. (IxDA, 2010) Also, in human- computer interaction conferences such as the prominent ACM Conference on Human Factors in Computing Systems (CHI) the term has frequently been discussed among researchers and practitioners from academia and industry. In the submitted paper 6

Understanding, Scoping and Defining User eXperience: A Survey Approach (Law & Roto & Hassenzahl & Vermeeren & Kort, 2009) the heterogeneous ideas of the meaning of user experience is described. The fact is, there is no consensual definition. Law et al (2009) aimed to systematically gather scientific and practical views on the scope of user experience. In the article, there are suggestions given of what should be included in the definition. Four important features that user-experience should address were derived from the survey: Temporal: The timeframe for when the user experience should be in the limelight. Framework: User experience should be understood through a framework of practice that iteratively defines constructs through activities such as designing and critiquing objects. Elements: Relevant components of a definition are measurable aspects such as physiological responses and user-task performances, as well as subjective, psychological constructs such as passion, types of affects and consumer perception. As part of the definition there should also be a target group and the intended area of usage. Scoping: Some argued that the scope of the user experience stretches beyond interaction. Others claimed that the definition should address what user experience is rather than what causes it. (Law et al, 2009) An additional comment was that the definition of user experience should not only be restricted to products or artifacts. Artifacts usually do not work in isolation; the usage of a mobile phone is for example closely knit to the operators services. Hence, interactions are not only made via artifacts but also by services and companies given that the interaction occurs via a user interface. The scope for the term user experience should therefore be bound to products, systems, services and objects which is shown in figure 1 below. (Law et al, 2009)

Figure 1 User Experience in relation to other experiences (Law et al, 2009) In 2008 the International Standard Organization (ISO) Technical Committee 159/SubCommittee 4 on Ergonomics of human-system interaction proposed the following definition of user experience: A persons perceptions and responses that result from the 7

user or anticipated use of a product, system, or service (ISO DIS 9241-210:2008 part 210, as cited in Law et al, 2009). The ISO definition focuses on the object the user experience is related to. This is in line with the results from the survey that user experience is related to usage. The survey respondents seemed to agree that the concept of user experience is dynamic, context- dependent and subjective (Law et al, 2009, p. 727), a notion that originates from the many potential benefits coming from the usage of a product.

2.3 Internet Research

The Internet is not only an object of research, but nowadays also increasingly used as a tool for research. Several traditional qualitative research methods have been transferred to fit online research, some with modifications and some without. (Flick, 2009) Market research is a discipline that especially has taken on the Internet as a research arena. Internet marketing, social media and Internet opinion leaders are the basis for online recruitment and consequently Internet research. It is not as costly to perform Internet research and user experience studies online as in the offline arena where travel expenses can be high and geographical constraints may be hindering. 2.3.1 Internet Marketing The growth of IT and communications technology allows for a more effective use of consumer-relationship management in consumer and mass markets (Merisavo, 2008). Advances in technology consequently foster changes in marketing methods (Rust & Espinoza, 2006). Thanks to information-technology tools, companies have the chance to be more customer-centric and market oriented by communicating with customers individually. The social-media explosion has also influenced the marketing community. Viral marketing is defined as a strategy that encourages people to pass on an explicit or implicit marketing message to other people. The virus symbolism originates from the exponential growth the virus usually takes, which is what the marketing strategy is aiming for. However, these marketing campaigns are distributed through digital media. The viral marketing technique is mostly used when a product does not have the potential to generate a buzz itself. Instead the marketer has to create the buzz, pass it on and make the message contagious. By distributing contagious ads through peers, a viral message is created and the brand awareness increased. Many companies are realizing the potential in viral marketing as the most powerful selling tool of ideas. This takes place directly from consumer to consumer. The focus on the consumers personal experience with the brand usually adds credibility to the product. (Kirby & Marsden 2006) Snowballing techniques are based on the existence of social networks and linked to viral marketing methods of how to spread a message. Also the sampling procedure, snowball sampling, relies on the dynamics of natural social networks. (Noy, 2008) having other people tell your story drives action (Scott, 2007 p. 92) Scott(2007, p.92) argues that when marketing companies employ viral campaigns, these rarely spread as far as messages spread by individuals. Corporate-based viral campaigns may even result in bad reputation on the corporations behalf when trying to interfere with something that should spread organically over the Internet. (Scott, 2007)

Online opinion leaders are experts in collecting and spreading information on the Internet. It is valuable to identify who the influential leaders are according to the frequency of involvement in activities such as: participate in chat rooms post to newsgroups send emails to companies make friends online A common feature is the generating and participating in word of mouth activities. After identifying the opinion leaders, a company should be attentive to their ideas and dub them brand evangelists (Kirby & Marsden 2006). By monitoring blogs, companies can keep informed of what is written about them and their products on the Internet. Also online opinion leaders may be found in this way. There are trackers and blog search engines such as Technorati 1 that present statistics that can be used in the search for online opinion leaders. Kirby & Marsden (2006) suggest a road map to identify opinion leaders in a certain segment: What demographic, behavioral, attitude characteristic are we looking for? Decide what group to draw the opinion leaders from. What are the opinion-leader criteria? Decide what qualities to look for when targeting the influential leaders. Create a list of potential opinion leaders. Have the people on the list participate in a screener where they are asked questions about behaviors and attitudes in order to differentiate the leaders. Analyze the study results and determine who the opinion leaders are. Let the communication begin! The opinion leaders like to get first hand information before others and for that reason it is important to offer them newsletters about novel products and industry trends et cetera. Have them try your services in exchange of feedback. Sustain the relationship and make sure to be transparent in the communication. (Kirby & Marsden 2006) Instead of solely acknowledging good comments of ones brand, it is worthwhile to use both positive and negative buzz. By creating relationships and make an evangelist the source of the brand the company shows that they value all user comments. In the blogosphere for instance, a blogger should therefore answer quickly to blog-post comments, preferably through a personal and individual message. Blogs allow for monitoring and tracking comments, there are plenty of tools to use for this and the monitoring can be either active or passive. Thus, past behaviors may be analyzed to decide future direction. (Wright, 2006)

1. 2. 3. 4. 5. 6.

7.

www.technorati.com

The alternative to personal messages, non-targeted messages, may be regarded as spam by the recipients (Scott, 2007). However even targeted messages are sometimes deemed as spam. Nobody wants to be mistaken for a spammer these days the term implies association with shady stock promoters, purveyors of counterfeit products, identity thieves and other Internet bad guys(Stoller, 2008, p. 48). According to Stoller (2008), todays automated filters unfortunately too often mark legitimate emails as spam. This is challenging for companies while they strive to keep in touch with their customers and business partners. Emails such as newsletters are not necessarily found in the receivers inbox due to filtering services. It is no longer that common for senders to get informed of non-deliveries due to the fact that email notification delivery might reveal information that in turn can be used by spammers. The uncertainty factor, whether a message has been reached by its recipients or not, makes the company risk losing the contact with the customers as well as their interest. A common recommendation is to avoid any kind of sending practice that could be interpreted as intrusive, coercive or deceptive (Stoller, 2008). By making email correspondence such as newsletters optional the receiver must give his or her permission and should be able to opt out of the service at any time. Transparency in the communication is another important element that can win the receivers trust. The address that the email is sent from and the address that the email will be sent to when pressing reply should match. (Stoller, 2008) According to Anderson, editor-in-chief of Wired magazine, we distance ourselves from the economy of scarcity where there is not enough room to carry everything for everybody (Anderson, 2004). Now thanks to the possibility of online distribution the approach is the opposite, the economy of abundance. Essentially, what will be profitable is no longer only a matter of volume. Anderson coined the term The Long Tail (see figure 2) for this situation where everything is found on the long tail. Many businesses limit their goods to the high volume popular segments; however, many sales take place outside the popular sphere. Embracing a smaller and niche -based market will result in a great number of niches in the long tail. By applying the long tail approach, businesses can identify new markets and expand existing ones. (Anderson, 2004) In a greater extent, Andersons theory about the Long Tail could be applied also in marketing strategies. On the Internet there is a long-tail market for content created by different kinds of groups, ranging from non-profit organizations to big corporations. There is something for everyones unique taste. (Scott, 2007)

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Figure 2. The Long Tail Essentially, the long tail enables businesses to focus on a small and specific market, yet find enough of an audience to form a community while making a profit through advertising and product sales. The social media is the basis for a fundamental change in how messages are communicated nowadays. The cost of producing content and making it available to people on the Internet is marginal in comparison to producing marketing messages in the traditional offline media. The effect of low publishing cost on the Internet has subsequently shifted the power of communicating from professional writers and publishers to the everyday person. Today messages are communicated more equally by everyone, all of them with the potential of being as influential as messages distributed by news agents and such. (Comm, 2009) 2.3.2 Online qualitative research methods Many offline qualitative research methods have been applied to fit the online sphere. However, according to Scholl, Mulders, and Drent (2002) quantitative online research is one step ahead of qualitative research. Structured surveys are easier to perform online as opposed to open qualitative interviews which require more engagement on both the respondents part and the initiator. The advantage of using online research is the global perspective that a survey enables. Interacting with respondents worldwide without any travel expenses makes the evaluation process more efficient. (Scholl et al., 2002) The traditional use of interviews in the offline arena embraces the face-to-face contact. Despite the lack of that key element in Internet research, the structure of online interviews should strive to resemble the same face- to -face aspect. The easiest form of online interviewing is having a conversation in a chat room, that is, in a synchronous form where direct messages can be exchanged. An asynchronous conversation is an interview structure where questions are sent out to the respondent and the respondent sends back the answers after a set time. Group interviews are also possible to conduct on the Internet. A focus group in the offline environment is usually held with a group of six to eight people who together discuss a specific topic in an interview for one to two hours. In regards to online focus groups there is, like for online individual interviews, also a distinction between real11

time and non-real-time groups. Participants in the synchronous category may take part in chat-room sessions or special audio- or video conferences where a group of respondents meet with a moderator. The asynchronous groups do not require all respondents to be online at the same time. An example of a non-real time group session is a bulletin board. A bulletin board is held in an online environment where each focus group respondent may take as much time as needed to respond to questions and read and reflect on the other respondents responses. Additional quantitative methods online are email interviewing, virtual ethnography, and analyzing documents. (Flick, 2009)
An example of how online research methods were applied is a market research case study initiated by Canada Post. The study object was a new web-based service. The online market research firm Itracks was assigned the job to conduct the market research. Simultaneously a comparative study looking at differences in outcome between online and offline research methods were performed. In this case study a face-to-face focus group, a synchronous online focus group, and an online bulletin board were held to monitor the different outcomes that each method would provide. The outcomes showed that through the online methods participants revealed more of themselves than in the face- to- face method. This study suggested that online participants either are more expressive or that writing allows the participants to express their concepts and emotions in a greater depth. (Itracks, 2010)

In figure 3 below is an assessment of different interview methods illustrated. The diagram describes the differences in performance between offline face-to-face focus groups and online focus groups. This study was performed in Italy and the participants discussed the controversial topics HIV/Aids and smoking. The face-to-face interviews in the study did not result in the same detailed and personal discussions as the forum and chat interviews did. The physical face -to-face presence was experienced as inhibiting to the discussion. Some participants felt uncomfortable disclosing their personal experiences and feelings about the discussion topic in presence of the other participants. As a result the participants adopted an impersonal rhetorical style when formulating their comments and emotionally detached themselves from the research topic. Furthermore, the participants seemed more critical towards the research object as well as their co-participants opinions. The combination of a chat and a forum had a more balanced interaction and the participants interacted more effectively as in a real working group. (Bosio & Graffigna & Lozza, 2008). For this reason, Bosio et. al. (2006) claim that a forum is to prefer to reach a detailed and well-mediated description of personal experiences(Bosio et.al. 2006, slide 26). A chatsession can be used to overcome a rational attitude and to generate new ideas or solutions (Bosio et.al. 2006, slide 26).

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Figure 3 A conceptual map of data collection procedures in relation to participants disclosure of thoughts and ideas. (Bosio et. al., 2006)
2.3.2.1 Online recruitment

The recruitment of respondents to online research studies is part of the Internet research process as for any research that requires a group of respondents. Even though the conditions are different for online and offline surveying, there is no specific theory explaining the issue of recruitment focusing on user experience studies. However, many books and articles give their best practice advice of how to organize and perform the recruitment. Marketing techniques are commonly used to recruit participants online. For instance, snowballing techniques may be used. That is, the first recruited participants are asked to contribute with contact information to other potential participants. For both synchronous and asynchronous online interview methods the recruitment of participants may also be done by monitoring existing chat rooms or discussion groups. By posting information about a study and ask interested participants for their contact information participants can be self recruited. However, within a forum only a limited amount of personal information is accessible. Nicknames or email addresses connected to a membership account is usually open to the public whereas more personal information such as age, gender, location and so forth most often is not. In this case, the person initiating a research study must rely on the accuracy in the respondents information. It is therefore important to be aware that it is difficult to know whether the participants meet your criteria and represent their personal information correctly. Consequently, this technique should focus the attention to the subject of reliability of such demographic data, and what the impact regarding contextualization this would result in. Yet this is only a problem if the aim is to create a homogenous and specific group. (Flick, 2009) In ad-hoc recruitment, respondents are solicited via search engines, banners, links, newsletters, news groups, mailing lists, word of mouth, or through offline media. This technique is said to be expensive and unpredictable. Pre-recruitment is therefore usually preferred since it does not require identifying new potential respondents. Instead online 13

access panels are used. Online access panels consist of a pool of people who have registered to participate in web surveys. However, also the panelists have to be recruited at one point. (Grtiz, 2004) There are also other strategies for finding participants to focus groups. Using a list, a database of already existing participants is generally the best way to begin. Such a database could include names of clients, members, employees, or those using a certain service. Another strategy is nomination where neutral parties are asked for names. Piggyback focus groups take advantage of other events where the targeted participants are gathered for different purposes. (Krueger & Casey, 2009) Retention techniques should be incorporated into the recruitment. That involves building relationships with participants to encourage them to continue be a part of a respondent access panel. Stimulus should be used in the recruitment process. People are more likely to sign up and participate in an online panel if a monetary incentive is offered. Nonetheless, the conclusion that the larger the incentive the more effective the approach is, proves to be ambiguous. In a study where participants were offered a chance to win the lottery if they agreed to participate, the results showed that the competition as an incentive was not sufficient enough to recruit respondents. Recruitment success might also depend on how prospective respondents are approached. Different solicitation methods such as contact through email, phone, fax and flier influence the decision to participate. (Gritz, 2004) In a qualitative product concept test on Philips Domestic Appliance Products, respondents were recruited through the instant-messaging program ICQ. Email addresses and phone numbers were retrieved from peoples profiles. Potential respondents were grouped according to a certain criteria of qualifications and subsequently contacted via email. Despite the thorough preparations a significant portion of the chosen respondents did not show up for the evaluation session. Scholl et al. (2002) suggest that respondents instead should be recruited in the traditional way and not through a social medium as ICQ. Evans and Mathur (2005) have a slightly different outlook of that problem though. In the case of low response rates in online surveys, the number of times the respondents are contacted should be limited to avoid unnecessary spam-like emails. Respondents usually appreciate small incentives as a token of appreciation. In addition, the survey should be short, relevant, and of interest to the targeted audience. Nevertheless, the number of questions to a survey is usually not the decision factor, rather it is the amount of time required to respond to it (Evans & Mathur, 2005). If respondents are hesitant to participate in an evaluation, the initiator should send out a detailed description of the survey and about the agency performing the study as an attempt to decrease the loss of participants due to privacy issues (Scholl et al., 2002). Including a deadline and selectivity statements of the study in the invitations will most likely activate more respondents to participate. It is important to distinguish the survey contact emails from spam. If this is not done, the respondent will most likely not acknowledge the survey request (Porter & Whitcomb, 2003).
The likelihood of responding to the request to complete a self-administered questionnaire, and doing so accurately, is greater when the respondent trusts that the expected rewards of responding will outweigh the anticipated costs (Dillman, cited in Bosnjak et. al, 2005, p. 492). Dillman (ibid) applies a social-exchange approach to increase response rates, a concept that stems from the hierarchy-of-effects model (Helgeson & Voss & Terpening, 2002) that describes the response behavior as a process that moves from attention to

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behavior: Attention Intention Completion Return. Helgeson et al (2002) believe that it is of more value to study the behavioral aspects of survey responses instead of response-enhancing survey-design factors. Focusing on respondent factors such as perceptions and attitudes that underlie survey response may give a better understanding of response behavior. An example of such a factor is the respondents attitude towards research. According to Helgeson et al (2002) attitudes toward research affected the attention, intention, and return stages. Incentives to participate were also an influence in the decision process. Attitudes toward research seemed to be the only psychological construct involved. This quantitative study aims to investigate if the planned-behavior model is useful to understand (non-)participation in web-based surveys. The usefulness is statistically measured by the predictive validity of the model. (Bosnjak, 2005)

2.4 Summary theoretical framework

This thesis theoretical framework is greatly influenced by marketing and behavioral theory combined with ideas from Internet research. Applying theories from Internet research as a means for recruitment to user experience studies is beneficial even though online recruitment is not necessarily easier than offline recruitment. Kirby & Marsdens roadmap to identify online opinion leaders is a first strategy to reach cutting edge users. Cutting edge users are often early adopters and sometimes opinion leaders who enjoy sharing their thoughts and ideas. Identifying online opinion leaders within the current discipline of technology could lead to finding the users who would be interesting to include in a user experience study. Offering incentives is a good way to influence users to participate. The incentives do not have to be monetary though. In communication with potential respondents it is vital to be transparent, preferably via personal communication. Individual contact is usually better due to the spam risk or the risk for the message to be perceived as spam. The participants must be talkative and willing to share their ideas in order to be an adequate respondent. Conducting user experience research online is a cost-efficient way to interact with users. Some online focus groups allow asynchronous communication. This is a great advantage since the respondents can plan their participation around their regular schedule.

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3 Background
In this chapter the study object Ericsson Labs will be explained in relation to the developer ecosystem and the fragmented smartphone applications market. The Ericsson Labs users represent the developers in the developer ecosystem.

3.1 Developer ecosystem

There is no clear definition of what a developer ecosystem represents. However, a developer environment that strives for a complete user experience encompasses the developer ecosystem into the offerings. A platform or a portal should be built by and for its users. The applications come from developers; theyre the innovation engine for the industry (Taft, 2005). The ecosystem should care for the developers and its partners business interests. The ideas of a developer ecosystem must be inspired by the concept of the business ecosystem. The business ecosystem is an economic community based on interacting organizations and individuals. It is an environment where industries no longer are isolated entities. Instead a wider perspective is applied to embrace the suppliers, lead producers, competitors, customers and other stakeholders that are involved in the economic system. (Moore & Curry, 1996) For that reason, also a portal providers role is to see the user as part of a greater system of actors, partners and consumers. For example, it could be to care for interoperability or publishing facilities. A portal should provide the users with tools and support to let them engage in creating new and innovative applications. Distribution capabilities are also a service that developers may need in order to channel their apps to the right audience. According to Taft (2005) a developer culture that emphasizes transparency has shown to be a key factor to success. It is important to show developers that are using a developer platform what the company behind the platform is doing at the moment. This could for example be through conferences where developers are invited as auditors. Sharing plans and information about where the company wants to play in the market in addition to posting an extent of technical information on the platform are additional examples of transparency. By keeping the developers who are using the platform on track with the news they will be more likely to adopt these technologies and at the same time keep the business ideas in mind. (Taft, 2005) 3.1.1 Smartphone application market The IT research and advisory company Gartners glossary defines the term smartphone as: A large-screen, voice-centric handheld device designed to offer complete phone functions while simultaneously functioning as a personal digital assistant (Gartner, 2010). A smartphone enables additional information accessing by combining voice services with email, fax, pager, or Internet access. Smartphone and mobile applications (apps) are software programs that are downloaded, installed and perform specific tasks on a smart-phone and mobile device. There is a great selection of applications including games, social networking, productivity, utilities, (multi)media and entertainment, and education. Mashups are applications that combine one or more functions. The market research and analysis company eMarketer (2009) assesses that the competition between rival mobile platforms and operating systems will spur within the next years as manufacturers and operators will 16

aim for a greater control of the market. Originality, utility, and entertainment are key values to future success in the application market. (eMarketer, 2009) Today the user is restricted to smartphone devices application stores (app store) due to the lack of interoperability between different operating systems and the devices app stores. As a result the relation to the operator gets weaker as the device and its software platform strengthen the tie. The mobile ecosystem is complex and involves many different players. The different app stores can be grouped into three categories. The first group containing the device manufacturer or operating system (OS) based app stores. These offer apps that are functioning only on respective OS (Android Market, Apple App Store, BlackBerry App World, Nokia Ovi Store). The second group of app stores represents the operator-based stores. These stores restrict the user to only use apps from the respective operator. The last group represents the operator and device independent stores that span across multiple OS platforms. App stores may offer different options of purchasing apps, either directly on to the device or via a web channel. Hence, the smartphone application market is very fragmented. (eMarketer, 2009) Historically, the drivers of the fragmented device market included different screen resolutions, different underlying operating systems, weak standard compliances, and many hardware configurations. Different language support and operator branding also adds to the market complexity. MacKinnon (2009) argues that the mobile programming model must realize a few basic things: that device capability will vary, wireless networks are not always available, and bandwidth and battery life are key. The difficulty lies in the inability to write once and run anywhere (MacKinnon, 2009). (MacKinnon, 2009) The common actors in the mobile application market are identified below. Mobile application developers create the actual applications and they can use the provided development and testing tools for their development. Mobile application developers are struggling with the evolving fragmented smart-phone markets interoperability issues. The developers can submit their completed applications to application store providers. (Frost&Sullivan, 2009) Application store (app store) providers aggregate applications from different application providers and offer them for download. Other services that can be offered are marketing support, reporting and feedback, and billing and settlement.(Frost&Sullivan, 2009) The App store ecosystem has three main actors. First is the device manufacturer or operating system-based stores such as Apples app store and Android market place. Second are the operator-based storefronts and third are the third-party storefronts such as Handango and Handmark (eMarketer, 2009). Platform providers are a complement to the app store providers and are formed when the storefronts partners with industry participants to jointly manage for example application distribution and billing and settlement. Platform providers are expected to become more important as more industry participants introduce their own app stores. (Frost&Sullivan, 2009) Mobile operators have their own application storefronts catering to both its consumer and enterprise segments. The mobile operators provide the wireless

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connectivity to enable the process of downloading applications from a device. (Frost&Sullivan, 2009) Portal providers are similar to the platform providers although they are not operator-system specific. See the following section for a further description of developer portals. 3.1.2 Developer portals Developer portals are offered in a wide range of structures, often hosted by operators but telecom and mobile companies are becoming more common as hosts. The portal provider offers developing tools such as application program interfaces for the developer to use. An application program interface (API) is an interface that is used to access an application or a service from a program. An API enables the use of a program within a program. Simply put, developer APIs are standardized software applications that shorten the developing process for developers. (PC Magazine Encyclopedia, 2009) The developer portal is the interface through which the portal provider will communicate and support the developer. Suggested functionalities are tools for development, white papers, tutorials, registration facilities and deployment capabilities. Access to developer portals may either be offered as a free service or at a cost. For example, on the Google Android developer portal it is not required of the developer to register to access the SDK 2 and forums. However, it is required to register in order to publish an application in the Android Market. The current registration fee is $25. Developers interested in the iPhone Dev Center and iPhone SDK must on the other hand register for a free Apple account. (Ovum, 2009)

3.2 The Developer Experience project

The Developer Experience project aimed to identify factors that impact developers overall experience of using two major mobile application platforms. To better see the developer needs, what motivates and triggers them in their work, cutting -edge developers were invited to a user experience research study. The developers that were included in the study were advanced users of the iPhone and Android platforms, from the US, UK and Sweden. Two campaigns were held and online evaluations were used as a method for interaction with the developers. Performing evaluations online was a new method for the User Experience Lab and it proved to be a successful and cost-efficient way to interact with users. Rather than traveling to the US and the UK and meeting the developers in person, the online study enabled the research team to interact with the respondents from the home office. The interviews in the first campaign were held over Skype and the second session used a 10-day long bulletin board session on the social networking site Ning 3 where one discussion topic was added each dpay. However, the User Experience Lab experienced a significant setback when not getting a sufficient number of respondents for the evaluations. The digital word-of-mouth agency Pronto communications were assigned the job to recruit participants for the campaigns. Prontos consultants first posted ads in forums and Facebook groups where iPhone or Android developers discussed development related topics in search for potential
2 3

SDK Software Development Kit www.ning.com

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candidates. This method only resulted in an insignificant number of participants. Instead, Pronto took a different approach and by following discussion threads on forums and reading blog posts the Pronto staff contacted potential candidates who seemed suitable (active and talkative) as participants. The developers were sent a personal message asking if the person would be interested to participate in a study (Axell & Sundqvist, 2009). In retrospect, this ad hoc strategy was experienced as extremely time-consuming since the developers were hard to recruit and it required manual search work. The cutting-edge users were also found to be difficult to reach via web communities which made the recruitment even harder as they usually are not registered in recruiting databases. The recruitment difficulty is a problem that the User Experience Lab is facing. (Chincholle et. al, 2009b) In brainstorming sessions that were held in February 2009 two groups of developers shared their ideas to help the Ericsson Research team identify important aspect of the developer experience. These developers identified themselves as coders of which one of the groups were hobby developers and the other groups were professional developers. Some of the key aspects of the developer experience according to the two developer groups are as following: Search engines are essential to the developers as these are the important sources of information that the developer needs to retrieve. Thus, using Google is seen as more efficient than typing URLs. Unofficial sites are more often visited for information gathering as opposed to official sites which are seen to be less open and have corporate policies. (Chincholle et. al, 2009a) This brainstorming session was the introductory activity to the Developer Experience project. The knowledge gained from the Skype interviews and the bulletin boards helped to further understand the developer characteristics. Four different developer profiles were identified. The Believers believe in the principle of open source above anything else. They prefer developer platforms that big companies not fully control. For this reason they usually prefer Android over iPhone. The Pragmatists on the other hand are more money oriented which impacts their decision to optimize their time and only focus on one developer platform. They believe that going with a strong commercial actor often gives a better return on investment for the individual developer. Hence, the Pragmatists are either Android or iPhone developers. The Cheapskates choose developer platforms based on barriers of entry. They prefer portals that do not require investments since they often develop for training purposes. Most of them prefer the Android platform. The Centipedes are business oriented and base their platform decision accordingly. They are focused on distribution capabilities and diversify their company by developing on many platforms. The Centipedes are using both Android and iPhone platforms. (Chincholle et. al, 2009b)

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Figure 4 Developer roles extracted from the Developer Experience project (Chincholle et al, 2009) The Developer Experience projects purpose has throughout the whole process been to feed the Ericsson Labs team with valuable information about developer patterns, needs and ideas; essentially to map the developer experience to serve the Ericsson Labs developer community in the best possible way. In this thesis the recruitment issues will be further investigated by studying the users on the Ericsson Labs developer portal. This thesis acts as a complement to the Developer Experience project.

3.3 Ericsson Labs

Ericsson Labs is a developer portal operated by Ericsson Research, Ericssons research department. The portal is a test environment that facilitates the beta testing of APIs in close cooperation with the developer community. Telecom and multimedia beta APIs are offered to experimental mobile and web developers. The portals combination of web and telecom enablers is exclusive as they originally were offered separately by providers, the operators and the capability providers respectively (see figure 5). Now, such enablers are combined and offered through one portal, the Ericsson Labs. The aim is to simplify for the developer (see figure 6). In line with the ambition to create a dynamic developer community, the site also offers a back-end service. Web 2.0 features such as forums, news and blogs and other services such as registration, documentation, tutorials, and sample code are offered to increase interaction between the portal provider and the application developer. (Minde et al., 2009) For this, the Ericsson Labs team have been inspired by the structure of Google Code, the Google Android developer portal (Larsson & Sandberg, 2009).

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Figure 5 The fragmented developer community

Figure 6 Ericsson Labs - a simplified work process Mobile applications are nowadays developed by a large community of developers. Ericsson Labs target group of users is experimental and cutting-edge developers. They include hobby and web developers along with Java and C developers that constantly are on the look-out for the newest technology appliances. Moreover, the aim is to involve researchers and students to let them use the portal for study, research, and experimental purposes, which also is a way to assure advance applications. Ericsson Labs offers the experimental developers a simplified work process, as shown in figure 6, in the combined offerings of telecom and Internet enablers. (Minde et al., 2009)
To download enabler keys and to participate in the sites forums the user has to be a registered member. However, this is not required to read posts and other material such as tutorials and documents related to specific APIs. They are open for everyone to read. The Ericsson Labs team has used marketing channels to make the portal visible to the targeted

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group. These marketing strategies included web-ads, public relations through social media, and events in contexts where developers that would be interested in Ericsson Labs are found. The Twitter account 4 that is connected to the portal is also functioning as a news and information channel, as part of the marketing and PR strategy (Twitter, 2009). The Ericsson Labs Twitter channel has formed a large group of followers 5 since its launch in June 2009. The Ericsson Labs team wants to attract users with an experimental mind- set; it is not clear who the actual active users are though, what expectations they have on the portal and what their needs are. 3.3.1 Ericsson Labs offerings The main offerings on the Ericsson Labs portal can be categorized into three groups: development support, hosting & test, and showroom. The development support is the APIs and the surrounding developer environment including expert help in forums and blogs. These services include the developer portal as well as a back-end server system. Ericsson provides technologies and communities for developers and enable them, if needed, to get in contact with experts from different fields (Ericsson Labs, 2009). Featured on the portal are interactive web 2.0 services such as forums, news, blogs, registration, openID login 6, documentation, tutorials, and sample code (Minde et al., 2009). The back-end service provides the user with extra developer support before, during, and after the developing process. This includes API key handling, statistics, application publishing, and client distribution (Minde et al., 2009). The hosting & test offerings include deployment facilities and application servers, aside from the testing and evaluation activities that the Ericsson Labs experts offer. The showroom offering on the portal enables the users to publish their applications on the site. The applications go through a thorough evaluating process where Ericsson Labs team members evaluate and give feedback on the application before it is uploaded. All users are able to download and try the applications as they are offered for free and open to everyone. By the end of 2009 there were six applications available for download. They are built by both developers from Ericssons research department Ericsson Research and by external developers that are active users on Ericsson Labs. All of the applications use one or more Ericsson Labs APIs, which is a requirement to be published on the portal. Additional features offered on the portal are an all-encompassing blog and forum for general discussions and news spread. (Minde et al., 2009) Each API enabler comes with a mini site where a forum, a blog, documents with example code and tutorials are found. The separate sites are administered by different teams who are responsible for the specific API. At the moment there are thirteen 7 beta enablers offered on Ericsson Labs (Ericsson Labs (ii), 2009). The API portfolio spans from communication enablers (Mobile Java Communication Framework, Mobile Java Push, SMS Send & Receive, and Web Connectivity) to location (Mobile Location, Mobile Maps, Web location, 3D Landscape) to multimedia services (Streaming Media). Other APIs are Tag Tool, Face Detector, and Cluster Constructor. According to Sandberg (2009), the most popular tool is the SMS Send & Receive. These cutting-edge APIs are offered to let the developers create
4

http://twitter.com/EricssonLabs process for the user. At the time for the sending of first contact email, only seven enablers were available on Ericsson Labs.

5 3316 followers on December 18, 2009. 6 openID is a service that simplifies the login 7

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or experiment with advanced mobile/web services. The API is offered along with example code, tutorials and support features such as a forum. Publishing and sharing applications requires a distribution channel. Applications that are built with the tools from the Ericsson Labs APIs can thus be published in the showroom. However, only after being approved by the Ericsson Labs team. Ericsson Labs does not aim to become a big application store which is why users are recommended to also use established application front stores such as Sony Ericsson PlayNow, Android Market and Getjar.

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4 Methodological Approach
In this chapter, the studys methodological approach will be outlined. The working procedure, how the study was conducted and the procedures for information gathering will first be described followed by an explanation of the recruitment process and the interview methods that were used. In preparation for the recruitment process for the user experience study a literature review was performed, the Developer Experience team meetings were visited, and conversations were held with representatives from two communication and market -analysis firms. The main literature that was studied was taken from books and scientific papers within market research, Internet research, and marketing theory. In addition, independent market-analysis reports about the mobile-application market as well as articles related to user evaluations were studied. The User Experience Lab retrieved information about the Android and iPhone developer communities by using online interview methods. Attending the Developer Experience team meetings, in the beginning of the thesis work, was helpful to gain knowledge about how online evaluations may be performed. The meetings also gave a first insight into the application developer community. The communication and marketanalysis companies were Pronto Communication and Augur Marknadsanalys both of which were previously hired as consultants by Ericsson Research. Pronto specializes in word-ofmouth marketing on the Internet, its CEO Gabriel Sundqvist and one of the project leaders Sandra Axell gave their insight on the recruitment of participants to the Developer Experience project. Augur Marknadsanalys focuses on market research and market analysis, one of its partners Annalena Strm Carlsson addressed the key issues in offline recruitment of participants to market-analysis studies. The purpose of these meetings was to exchange ideas and understand how the consultants worked in previous Ericsson Research projects. The knowledge gained from these sessions has been used as a foundation for further investigation about online recruitment. Throughout the thesis work regular meetings were held at Ericsson Research with the thesis supervisor Didier Chincholle to make sure the thesis work was going in the right direction. His colleagues, Caroline Hgglund among others, that also were involved in the Developer Experience project also contributed with good input and feedback during the work process.
Two graduate students from the CyLab Mobility Research Center at Carnegie Mellon University, USA performed a quantitative survey study about mobile developers during 2008. One of the students was Alberto Lia with whom email conversation was established. Their projects scope, to investigate the mobile ecosystem, is closely related to the developer focus in this thesis. Their executive summary was the only public information about the study. In confidence Lia shared parts of their thesis about the survey design and the statistical methodology they applied. The Carnegie Mellon study was especially interesting since they used social media as a means to promote their study and find participants. The interactive recruitment channels that were used were Facebook, Linkedin, and other development related forums where information was posted about the study. They predicted that the survey invitation reached an estimation of 50 000 people (Lia, 2009).

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The Ericsson Labs portal was decided as a study object since it is a beta version and would benefit from user evaluations. Furthermore, in order to attract more users and thus facilitate and support more applications a user experience study is of value to understand which improvements are needed. The portal offers advanced tools to its users and would therefore be an interesting environment to test recruitment of cutting-edge users. In order to gain a better understanding of the developer community and the portal, an account on the Ericsson Labs portal was set up. In addition, the preparatory work included establishing and maintaining contacts with the Ericsson Labs project manager John Sandberg and his team member Staffan Larsson. Via telephone meetings and email conversations they answered questions about the portal which was valuable to better understand the purpose with the portal. The information gained from the user experience study of Ericsson Labs was presented to the Ericsson Labs team in December 2009. The results from the study will only be partially presented in this thesis due to confidentiality restrictions. In order to gain a comprehensive and deeper understanding about the Ericsson Labs users a qualitative research method is required. Reaching a vast number of users is not a goal and the findings will for this reason not necessarily allow generalization. The choice of study method was made in reference to the thesis theoretical framework. There is a close connection between qualitative market-analysis strategies and user experience research methods. The techniques apply similar means to gain knowledge about users and consumers. This is a reason for the great emphasis on marketing theories in the theoretical framework chapter. The fundamental difference though is that user experience studies usually are made in support of research and development whereas market research describes actual consumer behavior on existing markets. Performing evaluations online was the basis for this thesis although the decision to use individual interviews and focus groups was made since it in the Developer Experience project proved to suit user experience studies well.

4.1 Execution of the user experience study

Due to the complexity in online recruitment of cutting-edge users, something that was experienced in the Developer Experience project, the idea to recruit participants from social media networks on the Internet was quickly dismissed. The consultants from Pronto Communications found it too time-consuming and the results were low in proportion to the effort the method required. For this reason it was decided to strictly use the Ericsson Labs user database to pull participants from. The overall goal with the study is to facilitate a user experience study and thus evaluate the Ericsson labs site. Below is a description of the work process from the initial study approach to the actual study process. 4.1.1 Initial approach Initially, the plan was to include three groups of users in the study according to the following set up: Group A: The first group includes active users on the Ericsson labs site. They use the APIs distributed by Ericsson, have published at least one mobile application and regularly contribute to the forum on the site. Group B: The second group also consists of registered users on the Ericsson labs site although they are not as active as the ones in group A. Group Bs users are 25

defined as semi-active, they have downloaded at least one of the APIs but never published anything. Group C: The third group has no previous relation to the Ericsson labs portal. The non-users might have heard about the site yet never registered. They are active developers on other developing portals where they have published at least one application. For this reason they might be interested to also learn about Ericsson Labs. The three groups were planned to be recruited in different ways. The contact information for group A and group B would be provided by the Ericsson Labs team. Group A and group B were planned to be approached simultaneously and would respond to the same screener questionnaire. Screener questionnaire consist of qualifying questions that aim to identify a target audience. The appropriate respondents should quickly be recognized by analyzing their screener responses. The screener can either be included in the complete research questionnaire or be separate. If the screener is separate the real research questionnaire will be provided if the person passed the screener test. (McDaniel & Gates, 1998) Depending on their screener responses, the respondents were intended to be divided into the two predefined groups (group A and B). Everyone would be contacted through individual and personal emails. Group C was planned to be contacted via forums and blogs. Furthermore, the groups should be approached in different ways and the studies should apply different evaluation methods in order to learn as much as possible about online recruitment. Screenshots of the site or some sort of visual stimuli should be included as discussion topics to initiate conversations about the usability of the portal. After receiving more information about Ericsson Labs and considering the Developer Experience projects recruitment difficulties, Group C was decided not to be included in the study. The reason for this is that Group C was considered too heterogeneous. Recruiting these developers would require using an ad-hoc strategy just like the recruitment method that was used by Pronto Communications in the Developer Experience project. Also, including Group C in the study would be more of a marketing strategy to gain more users rather than a method to evaluate the portal. The recruitment plans were as a consequence rearranged (see next section 4.1.2 for the actual method approach). 4.1.2 Actual approach the recruitment process The recruitment phase should start with analyzing which participants one wants and how to reach them. To decide who to include in the target group, the purpose of the study should be considered. That is, one has to consider who the research study should make statements about and who will be able to provide that kind of information. Having a great understanding of the targeted group is vital in order to create the right message to communicate. Krueger & Casey (2009) identifies three factors that drive the decision of who to invite: the studys purpose, everything the research team knows about the targeted group, and the budget of the study which also sets the degree of specification. (Krueger & Casey, 2009) In order to be able to recruit participants to any type of qualitative study, the demographic and observable characteristics of the targeted group has to be identified as precise as 26

possible. Without any prior experience from recruiting cutting-edge users there is no shortcut but to start from scratch. However, if not knowing anything about their background even starting from scratch is difficult. Considering the importance of understanding who the users are and what forums they are active in is therefore a must. Hence, the research plan was changed to consists of studying the users on the Ericsson Labs site. The objective is to gain more knowledge about who they are and about their background. Studying the members on the site will result in learning: Who the users are The users background What the users are using the Ericsson Labs site for The main motivation (drive) for using Ericsson Labs APIs What is missing on the portal and what improvements to make
Three different groups of Ericsson Labs users were identified. One group comprised of users who are registered on the site but have not shown any sign of activity yet. The second group consists of registered users who have downloaded a key to an API enabler but never made a request to it. The third group also downloaded the key and made at least one request to the enabler. A request could for example be to send or receive an SMS for the SMS Send & Receive API or to request a position for the Web Location API (Larsson, 2009b). The Ericsson Labs team can log the server traffic and determine how active the users are.

Group NONO: Users who are registered but did not download an enabler, and for that reason never made a request to the server. Group YESNO: Users who are registered and have downloaded an enabler but never made a request to the server. Group YESYES: Users who are registered, have downloaded an enabler and made at least one request to the server.
All three groups were considered interesting to learn more about although the groups which are not that active were considered more important for the Ericsson Labs team to contact. The team needed to understand why users from group YESNO and group NONO are not as active and what could be done to make them more involved on the portal.

The user experience study was made possible thanks to a database of users operated by the Ericsson Labs team. The contact data contained information of how active the users are on the portal. A selection from the database of addresses was made and the three groups were approached simultaneously but were sent different screener questionnaires (see contact letters in Appendix I). Everyone was contacted through individual and personal emails. The first interaction with the participants was through a screener. The screener questionnaire consisted of qualifying questions that aimed to identify the cutting-edge users. The screener questions were added to the contact email. These questions would respond to the respondents basic demographics such as age, gender, location and occupation. Furthermore, the screener would indicate if the users had downloaded any of the Ericsson

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Labs APIs and if so, whether they are using them or not. They were also asked which of the APIs they were using. The screener questions were, however, slightly customized. It was already clear that the NONO group did not use any of the APIs, which is why some questions sent to the YESYES and YESNO users were not sent to the NONO members (see Appendix I). The contact letter was carefully composed with the input and advice from the Ericsson Labs team. The letter was for that reason cautiously reviewed and the decision was made to include the screener questionnaire in the first contact email. This would decrease the number of emails the users would be sent. The reason for being so careful in the approach towards the users was that they should at no cost be distressed about being contacted. The Ericsson Labs team did not want to risk losing users. They requested that the contact information to the users consequently should be handled with extra care. The letter was composed to address each individual and to give a personal impression. The individual aspects were assured by greeting each receiver with his/hers Ericsson Labs nickname (usually the first name) and by sending individual emails. Due to restrictions with regards to the handling of the user database and specific requests from the Ericsson Labs team, the Ericsson Labs team was assigned as sender of the email. Thus, the email was sent from the email address survey@labs.ericsson.net and a copy was sent to sara.abramowicz@ericsson.com as the administrator of the study. The goal was to recruit at least 10 participants per group, a total of 30 people. The first set of emails were sent October 27 2009. In total 430 people were contacted in 5 different rounds of email distributions. Due to the fact that the emails were customized and individually sent it was not possible to send all at once. For this reason several rounds of email distributions were required. Also, the request from the Ericsson Labs team was to disturb as few Ericsson Labs users as possible. It was initially expected to be sufficient with the two first batches of emails. Contacted 1st 2nd 3rd 4th 5th YESYES 111 36 13 10 49 YESNO 130 38 30 19 42 NONO 189 50 48 20 66 Table 1 Number of Ericsson Labs members that were sent the contact email

3 1 5

The number of letters sent in the second and third email distribution rounds depended on the response rate from the first batch of emails. Some users responded the screener as if they should have been part of another group. In those cases, the groups were rearranged according to their responses.

4.2 Interview method

Focus groups should evoke conversation and the discussion questions should be formulated accordingly (Krueger & Casey, 2009). Deciding the interview method is therefore essential to establish a successful research process. Performing interviews in an online setting is beneficial since it is less costly and it makes it possible to also interact with participants

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outside of Sweden. Performing interviews to evaluate the Ericsson Labs portal online is extra useful since the site has a global user base. The thesis qualitative method of data assembling use primary data collected from interviews and focus groups. A recommendation given in the Developer Experience study was There is no doubt that such methods [online methods Skype interviews and Ning bulletin boards] can be used for collecting information from - but also for interacting with Ericsson Labs developers (Chincholle et. al, 2009b). However, the decision of which interview method to apply was made after knowing the number of users that responded to the screener questionnaire and thus had given their consent to participate. Initially though, the suggested interview method was that if enough participants from group YESYES and YESNO are interested, they would be interviewed through online focus groups. The group sessions would be interactive discussions where the respondents will respond to questions on a bulletin board. Bulletin boards, a type of online focus group, would be held on the social networking site Ning. In the Ning network one set of discussion questions were planned to be added during five days, 5 topics presented by the end of the session. The participants were told that the online sessions would take maximum 60 minutes of their time, a guideline that also the planning for the interview methods must follow. After that, a few respondents from the bulletin board will be handpicked and asked to be part of a second online session, performed in real time, to elaborate and go further into discussions. Group NONO will test chat sessions and Skype interviews which will be led by a moderator and performed individually and synchronously. The 30 minutes individual interviews using Skypes phone function was the second proposed interview method. The Skype voice call is a free service that enables phone calls to anywhere in the world (Skype, 2010). The only requirement is to possess a Skype account. This was requested of the respondents to arrange, unless they already were using one. In order to fully focus on the conversation during the interview, the Skype voice calls were planned to be recorded, with the respondents consent, using the add-on tool Pamela. The Professional version of Pamela that enabled unlimited recording time was downloaded for a free 30-day trial (Pamela, 2009). The participants were told to give three suggestions of date and time when the interview could be held. The discussion guides were arranged with respect to the chosen interview method. The three respondent groups were given different question topics based on their degree of involvement on the portal. (See Appendix II for group YESYES discussion guide, appendix III for YESNO and appendix IV for NONO.) The discussion guides were prepared to gain more knowledge about: Who the users are The users background What the users are using the Ericsson Labs site for The main motivation (drive) for using Ericsson Labs APIs What is missing on the portal and what improvements to make

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5 Findings
In this chapter the results from the user experience method study will be presented, as well as selected parts of the Ericsson Labs study findings. The interview methods used in the user experience research will also be assessed. The Ericsson Labs study results represent the users experience from the portal.

5.1 Online recruitment

The recruitment of users was difficult. Several rounds of contact emails had to be sent due to the low response rate in the initial email distribution. After the first 111 invites were sent, only 7 replies were received. For that reason, it was decided to send the contact email to additional members. The incentive to participate was initially stated as a voucher. When the response rate appeared to be low, extra effort was put to more clearly communicate the information about the compensation. The exact value of the voucher was not set at the start of the recruitment phase; it was now decided to 200 SEK. In upcoming conversations, and in some of the extra emails, the participants and potential participants were informed of this amount as an additional incentive to participate in the study. An immediate result, that negatively effected the recruitment, was that the email addresses to some Ericsson Labs developers were either expired, not in use anymore, or misspelled. The email server notified of undelivered mails and contact letters were returned to the sender. The faulty email addresses came from all three respondent groups, and not only the least active one. The impact of the non-functioning email addresses was that less users were reached by the contact email. In order to login to the Ericsson Labs account the member needs the exact email address and the password from registration. Thus, another result is that there are less people than registered accounts that access the Ericsson Labs portal. In addition, some users seemed to have registered for several accounts. This is not forbidden albeit an interesting behavior. One explanation why users would have corresponding accounts could be the limited number of SMS each user is allowed to send via the SMS Send & Receive API. Users who register again are entitled to a new quota of SMS messages. This is made possible by using different email addresses, for instance name@gmail.com, name@yahoo.com and name@hotmail.com. This conclusion was drawn by identifying patterns of such behavior in the contact information from the user database. All this means that the real number of users were considerably lower than originally anticipated. After receiving the first replies from interested users, it was discovered that the original groupings of YESYES, YESNO, and NONO were not definite. The original group division (based on the information from the Ericsson Labs team) did not seem to adhere with the requirements of for example having downloaded or not downloaded APIs. Some members of the NONO group would for example according to their screener responses fit better into the YESNO group and would therefore be regrouped. The numbers in table 2 below represent the users who responded to the contact letter and thus showed interest in the study. The numbers in the table are based on the original YESYES, YESNO and NONO grouping, disregarding from that their screener 30

responses might have differed. Users who were interested in participating usually responded straight away after receiving the invitation to the study. If they had not responded within two days, they were less likely to respond at all. Responses Total 1st 2nd 3rd 4th "YESYES" 14 4 2 1 "YESNO" 7 2 1 1 "NONO" 8 1 2 Table 2 Responses to contact email before regrouping 5th 6 1 3 8 3 1(2)

Four of the responses were from users related to Ericsson. They were either employees or involved in Ericsson projects although not part of the Ericsson Labs team. These users had registered to Ericsson Labs with their private email addresses for personal usage. The participants in the study were not intended to be Ericsson employees or in any way associated with the company which is why all users with an Ericsson address were disregarded from the start. For this reason they were not anticipated to be in the respondent groups. Perhaps due to their Ericsson connection they were more likely to respond though. These four respondents are included in the statistics above but were kept in a separate group as their ideas probably would be influenced by their experience from the Ericsson work setting. Furthermore, a few participants were added to the study after the bulletin board sessions started. These could for that reason not be included in the groups YESYES and YESNO, even though they fit the group criteria. These respondents were therefore asked to participate in individual online interviews instead. Only one user asked for more detailed information about the study before deciding whether to participate or not. This respondent was uncertain whether he was the right person for the study as he had not used all APIs. The overall objective with the study was communicated as well as the actual requirements for being part of the study. Eventually, this person decided to participate. In total, 29 users were interested in participating in the study. They responded to the screener questions and sent their answers either to the external address survey@labs.ericsson.net or directly to sara.abramowicz@ericsson.com, in some cases to both addresses. They were in turn notified about the exact details of the study. The respondents that were asked to suggest a time and date for an interview were more likely to show up for the interview since they had suggested a time slot that suited them. Furthermore, those who did not respond at all did not suggest a time for the interview. Only once, a respondent forgot to be online so that the session had to be rescheduled. Viral marketing methods were applied as one of the recruitment strategies. A couple of respondents mentioned in the interviews that they knew other Ericsson Labs users. In one of the cases, the respondent was asked to tell his friend or co-worker about this study and to contact the administrator of the study if interested. This request did not result in additional respondents. The other case was when a professor replied that he himself did not use the
8

This contact resulted in two participants in the study

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account, but rather his students. He forwarded contact information to the students who were subsequently sent a contact letter about the Ericsson Labs study. This process resulted in gaining two more respondents.
14 YESYES 430 8 YESNO 4 YESYES 4 YESNO

3 NONO 3 (4 ) Ericsson
(Confirmation letter)

1 NONO 2 Ericsson

Contact Letters

Replies Invited to interview sessions Participated in sessions

Figure 7 Visualization of the recruitment procedure A considerable number of participants dropped out of the study. They had agreed to participate but did not show up for the session. Most of these users were supposed to be part of the online focus group. In figure 7 above the recruitment procedure from sending the contact letters to performing the interview sessions is visualized. As seen in the picture there were four Ericsson employees that responded to the letter with their screener results attached. However only three of them were invited to the interview sessions, the fourth respondents screener results did not qualify him for the study. In the table below the recruitment procedure is summarized. The participation rate is based on the number of people who responded to the contact mail and the number of actual respondents in the interview sessions. Summary of the recruitment procedure Received the contact email 430 Responded to the contact email 29 Respondents in the interview sessions 11 Participation rate 2,6% Table 3 Summary of recruitment procedure

5.2 Interview method

The interview methods were decided after receiving the screener responses. Before deciding which method to use it was important to have an idea of the number of interested

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participants. The group criteria for YESYES,YESNO, and NONO were kept the same for the interview sessions in order to separate the real active users from the nonactive. However, as previously mentioned, the original groupings were not definite. The group members were therefore regrouped. For example, one member of the NONO group had according to the screener answers downloaded an API and was therefore regrouped to the YESNO group. After considering the number of users that responded to the contact email it was decided to invite the groups accordingly: YESYES: 12 participants to an online focus group bulletin board session on Ning. YESNO: 7 participants to a bulletin board session on Ning. NONO: 3 participants to individual online voice interviews using Skype. Ericsson employees: 3 participants to indivual chat sessions using the Ericsson internal meeting tool Sametime. Additional users were contacted after the bulletin board session had started and three more users were gained to the study. These participated in individual Skype interviews. YESYES: 2 participants YESNO: 1 participant 5.2.1 Bulletin board Two Ning networks were prepared for the bulletin board sessions; a blue network representing the YESYES group and a green network representing the YESNO group. 9 In order to set up a network on Ning the administrator registered to become a member of the site. In order to keep the sessions without advertisments a fee of $ 24.99 per network was paid. Via an email sent through the Ning site, the participants were invited to the Ericsson Labs study network and asked to register and create a profile. In addition they were asked to post a profile picture of themselves on their profile page. When logging on to the Ning forum the respondents were welcomed by a message that asked them to respond to a few short questions on their profile page. The questions were for example: How did you first hear about the Ericsson Labs?, What is your technical background, and Which API(s) have you downloaded? (see the developer background section in Appendix II-IV). Most of the questions had already set answers that the respondent could choose from a pull down list. By responding to the profile questionnaire the users shared information about themselves to their fellow network members. This was expected to stimulate the discussion and increase networking. Below is an example of a respondents answers to the profile question. The picture is a screenshot from the respondents profile on the Ning YESNO network.

http://ericsson-labs-study.ning.com/ YESYES network http://ericssonlabsstudy.ning.com/ YESNO network

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Figure 8 Profile questions belonging to Respondent K from the YESNO network The activities on the bulletin board forum did not proceed as predicted. In the Developer Experience study the bulletin board sessions had high response rate. The invited participants registered and followed the discussions on a day to day basis. Reminders were, however, required during the two week period to sustain the activities. The reminders had an effect and the participants answered the discussion questions in response to the notifications. The experience gained was that the bulletin board was a successful tool for this type of study. For this reason, the Ericsson Labs bulletin boards were expected to function in a similar way. Nonetheless, the participation appeared to be extremely low. In the YESNO network the discussion questions only received brief replies, if they were discussed at all. There was no interaction among the respondents, in spite of that they answered the questions after each other. The first and second discussion topics had a couple of responses. The three following days of the study the discussion topics did not receive any feedback. Below is a screen shot from the first discussion topic about the starting phase of development. The respondents were asked about their main motivation to register on Ericsson Labs and how easy they thought it was to get started on Ericsson Labs.

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Figure 9 Screen shot of replies to the first discussion topic in the YESNO network. In the YESYES network there was only one persistent respondent. Despite that none of the other users joined the discussion, this respondent continued throughout the week to write responses to the topics, exactly as it was intended. Halfway through the session this user was, in a separate message, encouraged to continue answering despite the non-existing interaction from the rest of the participants. Below is a screenshot from the YESYES Ning networks forum page. In the forum section the discussion topics are compiled and the number of replies and the date for the replies are indicated. Each discussion topic had only one reply; they came from the persistent respondent previously mentioned. The dates for the replies show that the respondent logged in to the network daily to respond to the topic of the day.

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Figure 10 Forum overview from the YESYES network Participants were lost before registering on Ning or after registering and answering the profile questions. Reminders were sent to the lost participants and to those who had already registered but not shown any sign of activity yet. They were reminded about the time for the bulletin board session and what was expected of them as respondents. If they experienced any problems they were asked to contact the administrator. Also, the information about the voucher compensation was more clearly communicated. Reminders were also sent to users who first agreed to participate but never registered to the network. In addition, the participants who had not yet participated after the five days were given three more days to respond and reflect on the questions. These measures only resulted in a couple more registered participants. One person who did not register to the Ning network informed the administrator that due to company restraints and confidentiality restrictions he could no longer be part of the research study. Another person had Internet connection problems and was instead rescheduled for a telephone interview. The participants who had not yet participated after the five days were given three more days to respond. 5.2.2 Individual interviews The individual interviews were at first decided to be held via Skype using the free voicecall service. However, only one of the three participants from the NONO group responded to the email where they were supposed to suggest a time for the interview. All three participants were sent reminders. In the voice-call Skype interviews, the interview experience was positive and the audio quality was excellent but Skype is forbidden at many work places and universities (Respondent H). The add-on tool Pamela worked excellent as a recorder, the audio quality was great. One of the YESYES bulletin board participants 36

could not participate in the focus group due to a temporary lack of Internet connection. Instead, this participant was asked to be part of a telephone interview. The call was held via Skype using the pay -as-you-go service since the call was made to the participants mobile phone. Also for this call Pamela was used to record the conversation. These were the only voice interviews that were held. The rest of the individual interviews were held with Ericsson employees and participants that were recruited after the bulletin board sessions had started. The interviews with the Ericsson employees were held in the internal online meeting tool Sametime since using Skype generally is not allowed within Ericsson. In Sametime it is possible to start online private chat sessions which were used in these interviews. The chat was easy to use but it was difficult to know when the respondent was writing a message. There is an indication when one is writing a message. However, this indication is misleading due to time delay. This resulted in excessive waiting time in between posts, both on the administrators part and on the respondents part. According to Respondent J, the Sametime desktop client is preferred since it supposedly is more user-friendly. For the remaining individual interviews Skype was also used. In the email conversation leading up to the interviews, a couple of the respondents expressed a sense of selfconsciousness about having to speak English in the interviews since they were not native English speakers. On their initiative, the interview method was therefore changed to chat sessions. Chat interviews were perceived as less intimidating thanks to the constraints of a chat window interface. A chat allows for delays in the discussion which enables the respondent some extra time to reflect on the answers. It lets the respondent take as much time as needed to phrase a reply whereas verbal interviews expect a more immediate answer. In the Skype chat interviews the waiting time in between messages was therefore condoned, especially since the indication when one is writing and editing a message works better than in Sametime. In the chat transcript in figure 11 below the waiting time between chat messages is clearly indicated by exact time and date. There the respondent took almost two minutes to reflect on the question and phrase an answer. (For more examples of chat transcripts see Appendix VI).

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Figure 11 Chat transcript from individual interview with Respondent G using Skype The chat conversations were recorded by saving the complete chat transcripts. In the chat interviews emoticons 10 were sometimes used. This made the conversation feel more personal and made the discussion have an easier flow. The respondents from the chat interviews seemed to be more interested in the study since they were exposed to a more personal interaction. During the individual chat interviews small talk was necessary to start up the conversation and to feed it. However in the verbal interviews, the discussion was more or less kept to the discussion guide and the conversation did not allow for side tracks. Hence, the chat interviews were more informal than the verbal interviews. Several interview methods were used in the user experience study. Table 4 below describes the number of respondents that contributed to the study in each interview method. Active participants Ning bulletin board 4 Skype to Skype voice call 1 Skype chat 3 Sametime chat 2 Skype to phone voice-call 1 Table 4 Actual participants distributed over the interview sessions After all interview sessions had been held and after the bulletin boards were closed down, a follow-up letter was sent to the respondents in the beginning of December 2009. They were
10

Emoticon is a text rendition of a face viewed sideways often used to denote an emotion (Gartner, 2010).

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asked to respond to the following short questions about how they were approached and the interview method they were exposed to: Why did you decide to participate in the study? How do you feel about the way you were contacted for the study? What did you think of using the Skype voice call/Skype chat/Ning bulletin board /Sametime chat for the interview? What did you think you would get out of the evaluation session? Did the session meet your expectations? These questions were included in the email with information about the voucher the respondents would receive as compensation. Not every participant responded to these questions, those who contributed the most to the study also gladly answered these final questions. 8 of the 11 participants gave their thoughts on the interview methods. In mid January two of the respondents notified the administrator that they had not been able to accept the payment of the compensation on PayPal in time. This problem was solved by resending the respondents the compensation. At the same time they were reminded about the follow up questions. Most of the respondents were positive towards the study and thought that using the respective interview method was a good idea. Even though the bulletin board turned out differently than expected, a comment was It was a very good idea to use a bulletin board instead of same old poll structure. I think your main purpose was to start up a forum where developers could exchange experiences and ideas even after the end of the study Unfortunately it didnt work. But I still believe it was a good and original idea. (Respondent B). Some expressed that the interview methods they were exposed to functioned well whilst others suggested different tools such as MSN messenger and Pidgin. When asked about what they thought about using a chat as an interview tool, one respondent answered: I use MSN, Skype, ICQ for fun and Sametime in the work time. I think it was good, mainly because I write/read better than I talk (Respondent I). The respondents decision to participate was mainly based on a will to improve the portal, to network with other in the same field and to get the chance to discuss and share opinions. The respondents seemed to have understood why Ericsson Labs initiated the study. I think the dialogue and interaction are the most important things for building a relationship and grabbing attention from an Internet crowd (Respondent J). Two of the eight respondents that contacted the administrator in January were sent an updated version of the follow up questions. They were in addition to the questions above also asked why they thought other Ericsson Labs users decided not to participate in the study. Respondent I answered I think they do not want to waist time. Time is money. Did they know they would earn 200 SEK? :-). The participants that did contribute to the Ericsson Labs study are represented in Table 5 below: Total # of active Registered on Active on respondents Ning Ning "YESYES" 6 4 1 "YESNO" 4 5 3 "NONO" 1 Table 5 Actual participants distributed over the three respondent groups 39

The recruitment and the interview sessions took different directions than expected. They are summarized and visualized in figure 12 below.
19 Ning 3 Skype (voice) 3 Sametime 3 Skype (chat) 4 Ning 2 Skype (voice) 2 Sametime 3 Skype (chat)

430

Sent contact Replies Letters

Invited to interview sessions

Participated in interview sessions

Figure 12 The interview process

5.3 Ericsson Labs

The results from the Ericsson Labs user experience study will now be presented. The Ericsson Labs related comments in the study were either specific to for instance regarding a certain API or they were more general. The respondents thoughts and ideas expressed in this study may only reflect the APIs that they have used, except when discussing general concepts. Most users had only tried one or two APIs. The recruited participants were a diverse group of users. The group consisted of one female and ten males in the age ranging from 20-21 years old to 40-49 years old: 20-21 years: 2 25-29 years: 5 35-39 years: 3 40-49 years: 1 The age distribution reflects the participants occupation status; four of the respondents were students and other examples of professions were software designers, web developers, a CTO, tech support. The users have an advanced technical background, and they therefore appreciate the cutting-edge technology offered on the portal. Many of the users have a background in software development, in either mobile or web development. When asked about their technical background and more specifically which platform they have developed on, these are some of the platforms that came up. Microsoft .Net, Netbeans IDE, J2ME, C, Linux, Ruby on Rails, Visual Studio C# and British Telecom (BT) SDK, a broad mix of operating systems, languages, and platforms. The Ericsson Labs users are advanced developers with experience from either studying related subjects or working in related fields.

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The diverse group of users implies different needs and motives. Nevertheless, they all share a great interest in new and advanced technology. Some work individually whereas others work in groups which also mean that there probably are more people active on the site than what the numbers of registered members show. The respondents are interested in networking and in the exchange of ideas. Moreover, they are experimental, curious about the site and like to try new things. the site gave me access to numerous SMS messages for free for my experiments (Respondent F). A few of the users have business motives. Ericsson employees were found to be members and registered with personal email addresses. These are developing on their spare time working on projects aside from their work. The two most common ways to find out about Ericsson Labs was either by searching for a specific function or service and thus be redirected to Ericsson Labs or by recommendation from a professor or a professional social contact. A few learned about Ericsson Labs through the Ericsson Labs Twitter channel. The users, who were actively searching for a service, used a search engine such as Google or the database Programmableweb.com which lets developers keep track of a large collection of APIs and mashups. Most of the respondents registered on the portal because they, although in different ways, were interested in the offerings. This connects to how they found the portal. I registered to Ericsson Labs when I was looking for alternatives to my concluding [post grad. IMS & Multimedia Networks] project. I thought I could reuse some code and was looking for new ideas as well (Respondent I) There were two factors that really attracted me to Ericsson Labs. 1000 free SMSs which allows us to develop a concept without capital loss and how quick can we build the API into our own Enterprise Service Bus (Respondent K) The APIs that the participants are using and that were mentioned during the evaluation sessions are found in figure 13. At the time for the first email, there were only 7 APIs available on the portal. APIs such as the 3D Landscape API was only recently added to the portal at the time for the interviews, yet had already been experimented with by one of the users. But as the respondents had only tried one, or sometimes two APIs, their comments were most often directed towards a specific API. This makes their experiences difficult to generalize to the other APIs.
Mobile Java Communication Framework Mobile Maps

Mobile Location Mobile Java Push

Web Location 3D Landscape

SMS Send & Receive

Figure 13 Ericsson Labs APIs mentioned in the interviews

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Some Ericsson Labs users seemed to be registered several times, a result that was soon revealed. Either due to misspellings or because they use different addresses such as gmail/yahoo/msn or other company related addresses. According to Larsson (2009a), members are only allowed one key per API which means that they might use several addresses to get access to for instance more SMS traffic if they are using the SMS Send & Receive API. The send and receive SMS API is easy to understand. Quick and reliable deployment.(Respondent K) The respondents considered it easy to understand how to approach the APIs. They did not require extra assistance as the information that already existed on the portal was sufficient. The users could for this reason use their time for more innovative activities. Users are using the Ericsson Labs portal to get inspiration and to retrieve new ideas for potential projects. Ericsson Labs its [a] very good place to start play around with ideas(Respondent J) Furthermore they use the portal to experiment and understand new concepts. [About the Mobile Java Push API] it helped to understand the PUSH conceptit was helpful but in the end I didnt use it... only for testing and educational purposes (Respondent F). If the developer had a specific need, the tools offered are a solution to their problem. These users are more focused with their presence on the site as they found that the offerings on Ericsson Labs can be useful for them whereas others visit the site regularly to be up to date with new things added to the portal. The main motivation for using Ericsson Labs APIs is first and foremost the ability to experiment with the technologically advanced APIs that the portal is offering. On my point of view, its [Ericsson Labs] technological side is by far the most important and successful(Respondent B). In addition, the branded name Ericsson equals trust. Another decision factor is the help from experts in the Ericsson Labs team that is offered on the portal via the development support offering. Many of the respondents had specific ideas of what they are missing on the portal today. The portal is missing the international scope in spite of that the registered users come from all over the world. The functionality in certain APIs is geographically restricted and explanations are only found in English. Several of the respondents are non-native English speakers and therefore requested explanations in other languages. Meeting the needs of those users with varying English skills could be done with explanations in other languages or by incorporating more visual or graphic support with less advanced English. The respondents varying English skills were experienced while planning for the interviews. A couple of the respondents specifically requested not to be part of a verbal interview due to them feeling uncomfortable speaking English. Instead they suggested participating in a chat session. The international scope that is missing also relates to the APIs functionality. APIs should be applicable worldwide especially for the mobile maps(Respondent A). Be allowed to send more SMS for free. One respondent claimed that it is not specified that a user is restricted to a certain amount of free SMS. Another suggestion was to show which platform capabilities there are for the specific APIs. An Android developer was interested in the 3D Landscape API but later realized that it only is capable with Java ME technologies.

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The API documentations are straightforward and it is easy to start developing, but updates are needed. The users also asked for additional examples of usage for each API. The details should be well explained with examples and simulations of many situations. By adding more examples of usage and step by step explanations, the APIs will become even more intuitive to use. Errors in the example code were discovered, these should be documented along with other mistakes. More detailed explanations and examples of usage would facilitate a better developer experience on the portal. Another issue with the documentations for the different APIs is that they seem to lack uniformity. It is evident that there are many members of the Ericsson Labs team that write blog posts and administer the API forums differently. In addition to the lack of uniformity, there is also varying quality. Considering the great number of contributors to the blogs and forums, it is not obvious who actually represents the team. Additional comments related to the developer community. Several respondents commented on the almost-dead forum. [An] active forum is the main indicator of popularity (Respondent J). The portal would benefit from a more active community where both users and experts engage in stimulating discussions. As a developer I would like to see a well organized portal with a community of users that discuss related topics on the APIs and experts [that] give solutions and advice (Respondent F). The users agreed that a forum should be quick and reactive when help is needed. There is an unclear description about the portals future strategy with respect to APIs and support. The respondents did not seem to want to waist time developing in a non-mature environment. Spending time on a project requires one has certainty about stability of the platform and continuance of service... Things that a Beta version with some limitations cannot give you (Respondent B). To avoid misunderstandings it should be better communicated what the Beta version implies. If the users know that the portal is a beta and that the site is strictly experimental, their expectations will be set accordingly with respect to updates and quality standards. Users (developers) also demand that even a free service should meet a set of quality standards, especially with a brand as Ericsson behind it (Respondent H) . Descriptions about the APIs history could be interesting to add, as well as the progress, in order for the users to know if the APIs are still under development or not. Will the service be there in the future or is this just a fad that will blow away with the wind?(Respondent K) Another misconception was that Ericsson Labs is the same as Ericsson IP Multimedia Subsystem (IMS) 11. Some respondents found no clear connection between Ericsson Labs, Ericsson IMS and Ericsson Developer Connection 12. The programs are not integrated nor is there a description of how they are related, or complement each other. Integrating the programs was suggested as a possible improvement, especially regarding the forums.

11

Ericsson IMS is a network solution offered to operators as a tool for building networks that costeffectively allow combination of ongoing communicating sessions with multimedia elements to for example share live video while talking (Ericsson IMS, 2010). 12 Ericsson Developer Connection is a market service offered to Ericsson customers to channel their applications to operators (Ericsson Developer Connection, 2010).

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6 Analysis and Discussion

In this chapter the experience gained from the online recruitment and from performing interviews on the Internet will be analyzed and discussed in relation to the Ericsson Labs user experience study.

6.1 Online recruitment

The online recruitment did not proceed as expected; this was presented in the findings chapter. It is important to understand the recruitment methods flaws and why it did not provide the expected results. It is also essential to discuss what improvements are needed in order to better sustain future user experience studies with respondents. Below are some ideas regarding the recruitment to the Ericsson Labs user experience study. Access to participants to the user experience study was made possible through the Ericsson Labs user database. The recruitment of participants in this way was similar to using an access panel. Both methods give access to contact information and a great number of potential candidates. A significant difference though is that members of access panels voluntarily sign up to be contacted by market research firms. The Ericsson Labs users had not agreed to be sent emails about evaluating studies when registering for an account on the portal. It is likely that some users therefore were reluctant to participate. The contact email was prepared to be personal in accordance with the summary in the theory chapter, being transparent and personal in the communication is always preferred. Exactly as planned, the receiver was greeted by his/her name and the emails were sent individually. However, due to the Ericsson Labs teams restrictions the senders email address was non-personal. This may seem like an insignificant issue. In fact though, the receiver noticed only the sender in an unopened email. By using the survey@labs.ericsson.net address as sender, there is a potential risk that the email was perceived as spam or a non- directed message. It is irrelevant that the carbon copy address was personal if the receiver did not open the email. One explanation for the low response rate is therefore the issue of transparency in the email communication.
To add to the individual approach the letter was also composed and directed with regards to the receivers activities on the portal. The aim was that this would make the users feel specifically chosen for the study and influence them to participate. It is possible though that some considered it an intrusion of privacy that their activities had been mapped. It is likely that the users therefore were extra apprehensive towards the contact letter and that they experienced the information that was communicated to be too directed. This is also one of the reasons for the Ericsson Labs teams restrictions. The pro-active measures that were taken to handle this potential barrier were to emphasize the studys research focus and the beta status of the portal in the communication. The hope was that the users would see the focus of the study and the opportunity to influence and improve the portal as a justifiable act to withdraw information about the users. However, the Ericsson Labs team has received no complaints about the contact emails. Another likely dimension of the low response rate is that the users simply did not have the time to participate. As one respondent reflected on

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why users decided not to participate I think they do not want to waist time. Time is money (Respondent I). Providing the right incentives to participate is therefore essential. Using the Ericsson Labs user database did not guarantee adequate respondents. In a qualitative and evaluating study, active and talkative respondents are ideal. The recruitment strategy did unfortunately not assure this and the outcome of the study was therefore at risk since the study is based on active participation. The screener where the respondents indicated their basic information did not ask them if they are active in communities, whether they enjoy testing new things and sharing information about their experiences and it did not investigate if they are familiar with user experience research and similar evaluations. The screener should however only ask the important questions that determine if respondents qualify for the study or not. But for this study an exemption should have been made and additional questions should have been added to the same form or been put in a separate form. In retrospect, recruiting participants from a user database like this was not necessarily a preferred strategy for a qualitative study albeit the only available method to reach the Ericsson Labs users by. Seeing that some users had double or triple accounts on the portal and that several email addresses to other users were non-functioning, the 430 users that were contacted were in fact fewer. For this reason the response rate of 2.6 % can not be seen as a valid number. Nevertheless, few users seemed interested in the study. Participants were allocated from only one place, the Ericsson Labs user database. As a complement, respondents could have been recruited from other communities. But since there is no unofficial site where Ericsson Labs users meet and interact this was never an option. The developer portal is still fairly new to users and the beta status means that it is continually being improved. It may be that engaged users, users that are familiar with the study object and actively use the products or services, are more likely to share their ideas and thoughts. The low activity among users on the portal may explain why so few of them agreed to participate in the study. According to the results from the Developer Experience study, developers prefer to interact with each other on unofficial sites to official ones since they are less dependent on corporate policies. If this is valid also for Ericsson Labs users, an unofficial site will most likely eventually be established organically. Participants in research studies often want to make sure that they have enough knowledge to be part of the evaluation. However, being familiar with the topic is usually enough. In the Ericsson Labs study where also the non-users were important source of information it was not necessary to be familiar with Ericsson Labs offerings. Users only had to pass the screener criteria. What was important for the Ericsson Labs team was that the non-users were involved in applications development on other similar portals. They would contribute with a valuable outside perspective and ideas regarding their requirements in general developer portals. Despite that the study attracted only 11 developers, their profiles were in fact fitting the demanded criteria. The recruited users were cutting-edge and involved in advanced technology development. The respondents seemed to want to interact with other cuttingedge developers to exchange ideas and find job opportunities. For this reason, online recruitment is still a valid method to use in future user experience research. The 11 45

respondents were sent follow-up questions to evaluate the recruitment and the interview method. The respondents had an overall positive attitude towards the Ericsson Labs study. Sending an invitation via email was perceived as a good way to get in contact with the users. One of the users was surprised to have received such an email and another one did not remember how he was contacted so at least it did not bother me (respondent D). The information in the letter was said to be clear. All of the respondents were interested in the study and genuinely wanted to contribute to this project to help improve Ericsson Labs. The most active respondent in the bulletin board expected to learn something useful and new from other more experienced developers (Respondent B). A motivation to participate was also to see the interactive session as an opportunity to gain more knowledge about mobile-applications development. In hindsight, more time should have been allocated to the evaluation of the study method and the follow-up questions. Due to the low participation rate, and the extra correspondence that was needed to keep the participants in the study, it would have been interesting to further investigate why the respondents thought others did not participate, under what circumstances they themselves would not participate, and how important the incentives are. The monetary incentive also seemed to have been a decision maker for the respondents to participate in the study. About two months after the follow up letter was sent two of the respondents notified the administrator that they had not been able to accept their payment on PayPal yet. Their compensation was resent and in turn they replied to the follow up questions.

6.2 Interview method

Interacting with the developers in an online environment was initially regarded as a good method. The User Experience Lab had a positive experience from using online focus groups in the Developer Experience project. In the Developer Experience study, the participants were specifically selected from forums and blogs. These developers stood out for being involved in discussions and active, and thus suitable for the study. Participants who are writing messages in forums, asking questions or commenting on posts are usually good interview prospects. They are outspoken, well formulated and like to share their ideas. The fact that discussions in the Developer Experience bulletin boards were more interactive and lively is therefore understood. This was not the case for the participants in the Ericsson Labs study. There was no information available about the users on Ericsson Labs and the forums on the portal did not activate that many users. Although it was possible to match user-id names to posts in the forums, users are not bound to indicate their nickname in the forum posts. This made it extra difficult to match the active users that were found on the forums with their user details in the user database. In the Ericsson Labs study, the main issue with using online focus groups in the form of bulletin boards was the lack of interaction among the respondents. The bulletin boards were expected to encourage respondents to interact and network with each other. The low number of respondents is a likely reason for the missing interaction. In the YESNO forum no person took a consistent lead in responding to the discussion questions. There was no established continuous flow in the discussion. This forum had the most registered respondents. Five out of the seven invited participants set up an account on the Ericsson Labs studys Ning network and answered the profile questions. Only three of the five registered participants responded to at least one discussion topic. However, it was difficult

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to nourish the conversation in the bulletin board as the conversation was minimal already from the first day. Participants were encouraged to visit the network site daily to keep up with the discussions and respond to the topic of the day. Also the YESYES forum struggled with the discussion. In this bulletin board where the most active users on Ericsson Labs were included, only four of the twelve invited participants registered on the Ning network. Out of the four registered users, only one person responded to the discussion topics. The active respondent seemed to have understood the purpose with the bulletin board. The responses were written in a continuous flow, one for each day, and they included detailed thoughts and ideas. In both Ning networks all discussion topics were added. On the online sessions fifth day the registered participants were notified that they were assigned three more days to respond to the questions. The fact that none of the participants took advantage of the extra time during the weekend, means that it is not that likely that the low participation is correlated with scheduling issues. The discussion responses eventually declined in the YESNO network and answers for the three last topics were missing. In comparison, the YESYES network had less participants involved but received more responses of quality. The fact that the respondents in the Developer Experience bulletin board sessions were handpicked was an important reason to why they were more successful. When being handpicked, these respondents showed signs of having good participant qualities. That is, being talkative, conversant with cutting-edge technology, and interested in sharing ideas and thoughts. It is likely that most of the participants did not fully understand the concept of bulletin boards or the procedure for participating in them. Either they did not see the commitment the participation required during the five-day session or what kind of information the Ericsson Labs team was seeking to gain from the sessions. The contact email did not explain the interview procedure. It was not clear for the participants how the interviews would be performed when they signed up for the study. This was in retrospect an unfortunate strategy. It did not appear to be intuitive to understand how online bulletin boards are performed even though they in fact are similar to regular online forums where a question is posted and subsequently responded to. It could be that the participants were not familiar with the forum concept either. In any case, it is a matter of discretion how much information to provide participants with. If there is too much detailed information messages risk being ignored. Also, a too detailed explanation of for instance the demanded participant criteria might result in losing adequate respondents if the users themselves do not think they possess all. In contrast, if there is too little information there is a risk that a message is perceived as unclear and thus misunderstood. Measures were taken to convince more to register on the Ning network and to make the already registered participants to also engage in the discussions. The reminders did not have an effect though. Only the last reminder led to a few participants notifying the administrator that they no longer were able to participate and for some of the registered respondents to enter the discussions. Also in this case it is a matter of discretion how much information is considered adequate before risking the information being ignored by the receiver. The individual interviews performed better. The interaction was more successful and resulted in gaining more in-depth information than the bulletin boards. The respondents 47

were more likely to show up for the interview since they had been involved in deciding when the interview would take place. They also might have felt more obliged to show up if the interview session was individual. It is easier for a participant to not show up in a group session with many respondents such as the bulletin board, especially if the session is asynchronous and held over a longer period of time. The email conversation that was needed to decide a date for the individual interview led to establishing a more personal contact. This was valuable for the interview sessions. A couple of the respondents requested to add the administrator on Skype or Facebook, which is a positive sign of the personal and informal relationship that was established during the interviews. The participants that did not show up for the focus group could have been given the opportunity to be part of an individual session instead. Especially if they realized that they did not have the time to be active in the focus group discussions every day for five days. A drawback though is that the individual interviews required a Skype desktop client and a Skype account. If the interviews are to be performed during work hours, which most of the Ericsson Labs individual interviews were, participants have to be allowed access to Skype. However, some work places do not allow their employees to use Skype which therefore can pose problems to the interview administrator. If for instance Skype is not allowed the participants should be asked what other communication tools are possible to use, or persuade them it is better to perform the interviews after work hours.

6.3 Ericson Labs and its users

The overall results from the Ericsson Labs study show that the portal has both usability issues as well as concept issues. Considering the great number of non-native English speakers active on the portal, it becomes a usability issue when the language is a barrier to usage. The concept issues mostly concerns the misunderstanding about the portals purpose. Many respondents requested a more stable developing environment where it is clear what the purpose with the portal is. If not, they cannot guarantee their customers, friends, colleagues and whoever they share their applications with a trustworthy service. In addition, there are posts in the forum that also indicates this misunderstanding of the beta status and the implications of that. For instance, users ask why they are only allowed a certain amount of free SMS for the SMS Send & Receive API. They believe that the functionality is not enough for delivering a reliable SMS application. One of the participants commented on this, saying that if users would have known that the site is strictly experimental then they would have set their expectations accordingly. It is however not possible to meet all the quality standards in a beta test version that one would expect from a more mature, stable and commercial environment. From the interviews, it is evident that the portals purpose has not been clearly communicated to the users. Since the respondents did not understand the purpose, they believe that Ericsson Labs will function as if it was a mature portal. This was especially so for the expectation of support around the clock. From the findings some suggested improvements for the portal were drawn. The purpose should be clearly stated and communicated and the forum should be activated by for example initiating discussion topics. The Ericsson Labs team should also make sure to identify the Ericsson Labs team members on the site and to increase uniformity in their blog and forum posts. Desired functionalities according to the respondents are to transform the portal to a place where

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networking is possible and where job opportunities may be found. Companies that are looking to hire developers with a specific competence or developers looking for business partners would find such a site useful. This could also be an advantage for Ericsson to get in contact with and hire cutting-edge developers. Adding a forum thread where career opportunities can be discussed might be a sufficient measure. The respondents believed that it is important that a developer portal also offers a community that enables connecting with other developers and the exchange of ideas. Most of the users interviewed in the study use Ericsson Labs as a side activity; they are experimental developers and students (see figure 14 below) . The participants are technology oriented advanced developers. In connection to the Developer Experience projects identified developer roles, the role the respondents possess is for the most part the coder and the idea generator. They either have a specific need or are constantly on the lookout for new ideas. This creates different demands on the portal. The users who seek a specific service wish to develop in a mature and stable environment whereas the users who are looking for inspiration and ideas demand other things. Which user to focus on is something the Ericsson Labs team should consider. The experimental users claim that the portal does not offer a stable and mature environment with a clear future strategy.

Figure 14 The Ericsson Labs users identified (Chincholle et al, 2009b) Most of the respondents demanded the portal to be a place to connect with other developers, find job opportunities and share ideas. A successful portal is a portal that has an active community, either on the official site or on unofficial pages. There is probably not enough focus on the Ericsson Labs site which unfortunately was reflected in the difficulties in recruitment and the preparatory work of the study. Ericsson Labs developers were hesitant towards participating in the study and thus difficult to recruit. The respondents were a diverse group of users which reflects the Ericsson Labs users as a whole. For that reason it is important to understand that their needs vary. Another aspect of the heterogeneous user group also connects to the difficulties in the recruitment of participants 49

to the user experience study. The difficulty to recruit respondents can have been a reflection on Ericsson Labs lack of a cohesive community. If there was togetherness among the users they could have influenced each other to participate in the user experience study. Also in connection to the Developer Experience project, the four developer profiles the Believers, the Pragmatist, the Cheapskates, the Centipedes were considered with respect to the Ericsson Labs users. The respondents from the Ericsson Labs portal possessed some traits from the Believers. The users get access to core technologies on Ericsson Labs and from what the respondents said in the interviews they seem to prefer open source development. The respondents also have some features from the Cheapskates who develop for training purposes and often are students. Nevertheless, it is not certain that a comparison between the developers in the Developer Experience project and the developers in the Ericsson Labs study is valid. The respondents from Ericsson Labs focus on the technology whereas the developers from the iPhone and Android study seemed to be much more business oriented. Ericsson Labs caters to a different segment of developers that are more tech savvy and experimental. The Developer Experience project on the other hand focused on different operating-system based platforms and respective developer affiliations. The Ericsson Labs is in contrast a developer portal. The platform affiliation is not a crucial decision factor since application programming interfaces (APIs) operable with different operating systems are offered.

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7 Further research
Below are described suggestions of further research concerning methods for user experience evaluations, and especially online recruitment. Potential respondents can be contacted with personal email addresses as opposed to non-personal to investigate the impact of direct communication and possible differences in reaction. Another suggestion is to not offer any monetary incentive during the recruitment. It could be interesting if the initiator would emphasize other, non-monetary, advantages with participating in a user experience study. This is a way to explore the incentives effect. In future research it could also be meaningful to test other recruitment methods as a comparison. For instance, to test recruitment using only snowballing techniques where interesting users are approached in forums and asked to participate in a study. They are subsequently asked to spread the message about the study hoping to reach a greater number of users than are accessible through online forums. For additional Ericsson Labs user experience studies it could be interesting to for instance use the well-established Ericsson Labs Twitter channel to spread information. The Ericsson Labs Twitter profile has a great number of followers, many that may be NONO users of the portal who are specifically interesting to the Ericsson Labs team to interact with.

51

8 Conclusions
The aim with this thesis was to test and evaluate online methods for recruitment of cutting edge users to user experience studies. In order to meet this goal it was necessary to gain knowledge about the characteristics of cutting-edge users; this would simplify future recruitment processes. To learn about advanced users, a user experience study was performed of the developer portal Ericsson Labs. Although the recruitment was challenging, 11 users were recruited and they provided valuable information about the developer portal that was forwarded to the Ericsson Labs team. Considering the concept issues that were found with the portal, it is not surprising though that there were difficulties in the recruitment. It was a challenge to encourage users to participate in the study. It was difficult to communicate what the study would do for the portal when the users had not fully understood the portals purpose. The learning from this is that, in order to succeed with recruitment it is particularly important that the area of research is clear to the participants. It is unfortunate if users do not understand why they are asked to participate in a study and if it is unclear what they can contribute with. The users should know why their thoughts and ideas are important for the study. For instance, the contact letters to the NONO group resulted in the least number of respondents in spite of that this group was sent the most contact letters. The NONO users would have provided important information to the Ericsson Labs team. It is possible that the team would have gained even more valuable insight from the non-users than from the active users. An additional drawback was that not all participants turned out to be adequate respondents; this was especially a problem in the bulletin boards. In order to inquire that user experience research participants are adequate respondents, it is preferable that they have a track record of activities in forums and blogs. If users are active in discussions on the Internet they are more likely to be active in discussions as respondents. Users activities on forums and blogs should therefore be a decisive factor whether they would qualify to a study or not and thus be added to the screener. Previous to this though, the potential participants should first hand have been allocated in recruitment databases. If this is not possible, if the user profile is too specific, it is worth the extra effort to manually identify the online opinion leaders in the blogosphere or from leading forums and social networks on the Internet. Despite that online recruitment in this form is time consuming by acknowledging their activities on forums, the respondents are more likely to show up for the interview sessions and provide great depth to discussions. In future user experience studies, the User Experience Lab should balance the benefits of recruitment like this against the costs the method entails. To succeed in reaching and recruiting cutting edge users the following road map should be considered: Identify the cutting edge users; determine how specific their profiles are and whether they could be found in recruitment databases or not. 2. If the users are not found in recruitment databases, the identified user profiles will be helpful in order to find them in online forums and social networks.
1.

52

3. Users digital footprints and contents created on online forums and blogs should

4.

5.

6. 7.

be tracked to make sure that they are adequate respondents. That is, that they are talkative, willing to share ideas and eager take the lead in discussions. Use personal messages to contact the users. Transparency is important to succeed with the recruitment since the users would like to know who is behind the study and what the results will be used for. Provide incentives to convince users to participate and be explicit about what the compensation is. Monetary incentives are usually a good bet although providing firsthand information and insight to new and upcoming products and services can also be of interest to participants. Stressing that their participation is of value not only to the initiator but also could be beneficial to the users is an additional useful argument. Keep the communication on a moderate level to not overflow the participants with information and thus risk information being ignored. Clearly communicate which interview methods that will be used. For instance, thoroughly explain the procedure of bulletin boards. Like this the respondents will know what is expected of them as respondents and they can determine if they have the time to participate or not.

53

9 References
9.1 Printed
Bosio, A.C., Graffigna, G., Lozza, E., 2008. Toward a theory of technique for online focus groups, in Hansson. T (ed.), Handbook of research on Digital Information Technologies: innovations, methods, and ethical issues. Hershey, PA: Information Science Reference, pp.191-211. Bosnjak, M, Tuten T.L., Wittmann WW, 2005, Unit(Non)Response in Web-Based Access Panel Surveys: An Extended Planned-Behavior Approach, Psychology & Marketing, vol. 22, no.6, pp. 489-505 Chincholle et al, 2009a, Developer Experience | Results from brainstorming sessions with in-house developers, Ericsson AB Chincholle et al, 2009b, Android Developer Experience, Ericsson AB Comm, J., 2009, Twitter Power How to dominate your market one tweet at a time, Hoboken N.J.: John Wiley & Sons Dumas, J., 2003, User-Based Evaluations, In: Sears, A., Jacko, J.A., The humancomputer interaction handbook: fundamentals, evolving technologies, and emerging applications, Mahwah, N.J.: Lawrence Erlbaum Associates Evans, J. R. & Mathur, A. 2005, The value of online surveys, Internet Research, vol. 15 no. 2, pp. 195-219. Flick, U. 2009, An Introduction to Qualitative Research, London: SAGE Publications Ltd Gritz, A. S. 2004, Recruitment for online access panels, International Journal of Market Research, vol. 46, no. 4, pp. 411-425 Hansson, T, 2008, Handbook of research on digital information technologies: innovations, methods and ethical issues, Hershey, PA: Idea Group Inc Helgeson, J.G., Voss, K.E., TerpeningW.D., 2002, Determinants of mail-survey response: Survey design factors and respondent factors, Psychology and Marketing, vol. 19, no. 3, pp. 303-328. ISO standard ISO DIS 914-210:2008. Ergonomics of human system interaction Part 210: Human-centered design for interactive systems (formerly known as 13407). International Organization for Standardization (ISO). Switzerland. Kirby, J. & Marsden, P. 2006, Connected Marketing the viral, buzz and word of mouth revolution, Oxford: Butterworth-Heinemann 54

Krueger, R.A. & Casey, M.A. 2009, Focus Groups: A practical guide for Applied Research, Thousand Oaks, California: SAGE Publications Inc. Law, E. L-C., Roto, V., Hassenzahl, M., Vermeeren, A. P., Kort, J., 2009, Understanding, Scoping and Defining User eXperience: A Survey Approach, In proc. Conference on Human Factors in Computing Systems, pp.719-728 McDaniel, D., Gates, R., 1998, Marketing Research Essentials, Cincinnati, Ohio: International Thomson Publishing Merisavo, M. 2008, The interaction between digital marketing communication and customer loyalty, PhD thesis, Helsinki School of Economics, Helsinki: Helsinki School of Economics Moore,J. & Curry, S. 1996, The death of competition Fortune, vol. 133, no. 7, 142-144. Noy, C. 2008, Sampling Knowledge: The Hermeneutics of Snowball Sampling in Qualitative Research, International Journal of Social Research Methodology, vol. 11, no. 4, pp. 327-344 Porter S. R. & Whitcomb, M. E. 2003, The Impact of contact type on web survey response rates, Public Opinion Quarterly, vol. 67, no. 4, pp. 579-588 Rogers, E.M. 1995, Diffusion of Innovations, New York: The Free Press
Rust, R. T. & Espinoza, F. 2006, How technology advances influences business research and marketing strategy, Journal of Business Research, vol. 59, no. 10/11, pp.1072-1078

Scholl, N., Mulders, S., Drent, R., 2002, Online qualitative market research: interviewing the world at a fingertip, Qualitative Market Research: An International Journal, vol. 5, no. 3, pp.210-223 Scott, D. M., 2007, The new rules of marketing & PR: How to use news releases, blogs, podcasting, viral marketing & online media to reach buyers directly, Hoboken, N.J.: John Wiley & Sons Stoller, J. 2008, The spam wars part 2 new challenges for email users, CMA Management, vol. 81, no. 10, pp. 48-49 Taft, Darryl K. 2005, Developers to the core, eWeek, vol. 22, no. 39, pp. 11-12 Wright, J., 2006, Blog marketing: the revolutionary new way to increase sales, build your brand, and get exceptional results, New York: McGraw-Hill

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9.2 Electronic
Anderson C., 2004, The Long Tail, Wired magazine, Oct. 2004. Retrieved September 29, 2009, from http://www.wired.com/wired/archive/12.10/tail.html Bosio, A.C., Graffigna, G., Lozza, E., 2006, The influence of setting on findings produced in face to face and online focus groups Retrieved January 13, 2009, http://www.mytlab.com/focus_groups.pdf Ericsson Developer Connection, 2010. Retrieved January 12, 2010 from http://www.ericsson.com/developer/. Ericsson Labs, 2009. Retrieved September 10, 2009 from https://labs.ericsson.com/ Ericsson Labs (ii), 2009. Retrieved December 8, 2009 from https://labs.ericsson.com/apis/ Ericsson IMS, 2010. Retrieved January 12, 2010 from http://prodcat.ericsson.se/Default.asp?ArticleID=C31A70E1-A7CD-48179E16-8257F5765034 Gartner, 2010. Retrieved January 31, 2010 from http://www.gartner.com/6_help/glossary/GlossaryMain.jsp IxDA, 2010. Interaction Design Association Retrieved January 22, 2010 from www.ixda.com Itrack, 2010. Comparing Online and Offline Qualitative Research Methods. Retrieved January 11, 2010, from http://www.itracks.com/Resources/CaseStudies/tabid/99/Default.aspx Minde, T. B., Timster, M., Sandberg, J., Krling M., 2009, Ericsson Labs, Ericsson Review, no. 2, Retrieved October 20 2009, from http://www.ericsson.com/ericsson/corpinfo/publications/review/2009_02/files/EricssonLab s.pdf Pamela, 2009. Retrieved November 4, 2009 from http://www.pamela.biz/en/ PC Magazine Encyclopedia, 2009. Retrieved December 8, 2009 from http://www.pcmag.com/encyclopedia_term/0,2542,t=application+programming+interface& i=37856,00.asp Skype, 2010. About Skype Retreived Januari 20, 2010 from http://about.skype.com/ Twitter, 2009. EricssonLabs Retrieved December 8, 2009 from http://twitter.com/EricssonLabs

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9.3 Personal
Axell, S. & Sundqvist, G, 2009. In personal communication, October 1 2009 Larsson, S., 2009a. In email communication, October 28 2009 Larsson, S., 2009b. In email communication, November 2 2009 Sandberg, J., 2009. In personal communication, October 9 2009 Larsson, S. & Sandberg J. 2009. In personal communication, November 10, 2009

9.4 Figures
Figure 1. User experience in relation to other experiences retrieved from Law, E. L-C., Roto, V., Hassenzahl, M., Vermeeren, A. P., Kort, J., 2009, Understanding, Scoping and Defining User eXperience: A Survey Approach, In proc. Conference on Human Factors in Computing Systems, pp.719-728 Figure 2. The Long Tail retrieved October 8, 2009 from http://www.pontisblog.com/2007/12/11/long-tail-short-head-unprecedented-cross-selling/ Figure 3. A conceptual map of data collection procedures in relation to findings productions, retrieved from Bosio, A.C., Graffigna, G., Lozza, E., 2006, The influence of setting on findings produced in face to face and online focus groups Retrieved January 13, 2009, http://www.mytlab.com/focus_groups.pdf Figure 4. Developer roles extracted from the Developer Experience study, retrieved from Chincholle et al, 2009b, Android Developer Experience, Ericsson AB

57

List of figures and tables

Figure 1 User Experience in relation to other experiences_____________________________ 7 Figure 2. The Long Tail_________________________________________________________ 11 Figure 3 A conceptual map of data collection procedures in relation to participants disclosure of thoughts and ideas. (Bosio et. al., 2006) _______________________________ 13

Figure 4 Developer roles extracted from the Developer Experience project (Chincholle et al, 2009)________________________________________________________________________ 20
Figure 5 The fragmented developer community ____________________________________ 21 Figure 6 Ericsson Labs - a simplified work process _________________________________ 21 Figure 7 Visualization of the recruitment procedure _________________________________ 32 Figure 8 Profile questions belonging to Respondent K from the YESNO network _______ 34 Figure 9 Screen shot of replies to the first discussion topic in the YESNO network. ____ 35 Figure 10 Forum overview from the YESYES network______________________________ 36 Figure 11 Chat transcript from individual interview with Respondent G using Skype______ 38 Figure 12 The interview process _________________________________________________ 40 Figure 13 Ericsson Labs APIs mentioned in the interviews ___________________________ 41 Figure 14 The Ericsson Labs users identified ______________________________________ 49 Table 1 Number of Ericsson Labs members that were sent the contact email ____________ 28 Table 2 Responses to contact email before regrouping ______________________________ 31 Table 3 Summary of recruitment procedure________________________________________ 32 Table 4 Actual participants distributed over the interview sessions ____________________ 38 Table 5 Actual participants distributed over the three respondent groups_______________ 39

58

10Appendix I Contact letter

To the YESYES users:
Hi [NAME],

Supporting you the best way we can is important for us at Ericsson Labs. We are therefore initiating a study to evaluate and improve the Ericsson Labs offering. We would appreciate if you could take the time to participate in the study. This would be a great opportunity for us to get to know your opinions and thoughts regarding the site. Your feedback is of great value to us and will most definitely have an impact on the future direction of the site as the portal is still in its beta stage. Information retrieved from the study will be handled anonymously and will be for internal use only. As a participant you will be compensated with a voucher. Online sessions will be held during November 16 to 27, 2009. They will take approximately 60 minutes of your time. The research process will be administered by the Master thesis student Sara Abramowicz under supervision of the Ericsson Labs team. If you would like to participate, please answer the questions below and reply to this email as soon as possible (no later than November 2). If you have any questions, feel free to send them to this address: sara.abramowicz@ericsson.com Kind regards, The Ericsson Labs .. 1. Specify your <15........a 15-17......b 18-19......c 20-21......d 22-24......e 25-29......f 30-34......g 35-39......h 40-49......i 50-59......j 60-69......k 69+........l 2. Specify your gender Male.......1 Female.....2 3. Where 4. What 5. Have do is you you your currently current live? occupation? any of the Ericsson Labs' APIs?

.........................................................................

team

age

downloaded

59

YES........1 NO.........2 6. Are you using any of YES........1[continue with NO.........2[continue with the downloaded Q.6a] Q.6b] Ericsson Labs' APIs?

6a. Which Ericsson Labs' APIs are you using? Mobile Java Communication Framework...... 1 Mobile Java Push......................... 2 Mobile Location..........................3 Mobile Maps ............................. 4 . SMS Send & Receive....................... 5 Streaming Media..........................6 Web Location.............................7
Web Ma ps .. ... ... ... ... ... ... ... ... ... ... .

8 an i n fo r m e d o p i n io n w hy you do no t us e t he E r ic s s o n Labs'

6b. D o yo u ha v e APIs? YES........1

N O. .. ... ...

To the YESNO users:

Hi [NAME],

Supporting you the best way we can is important for us at Ericsson Labs. We are therefore initiating a study to evaluate and improve the Ericsson Labs offering. We would appreciate if you could take the time to participate in the study. This would be a great opportunity for us to get to know your opinions and thoughts regarding the site. Your feedback is of great value to us and will most definitely have an impact on the future direction of the site as the portal is still in its beta stage. Information retrieved from the study will be handled anonymously and will be for internal use only. As a participant you will be compensated with a voucher. Online sessions will be held during November 16 to 27, 2009. They will take approximately 60 minutes of your time. The research process will be administered by the Master thesis student Sara Abramowicz under supervision of the Ericsson Labs team. If you would like to participate, please answer the questions below and reply to this email as soon as possible (no later than November 2). If you have any questions, feel free to send them to this address: sara.abramowicz@ericsson.com Kind regards, The Ericsson Labs team ........................................................ 1. Specify your age <15........a 15-17......b 18-19......c

60

20-21......d 22-24......e 25-29......f 30-34......g 35-39......h 40-49......i 50-59......j 60-69......k 69+........l 2. Specify your gender Male.......1 Female.....2 3. Where 4. What do is you your currently current live? occupation? any of the Ericsson Labs' APIs?

5. Have you downloaded YES........1 NO.........2

6. Are you using any of YES........1[continue with NO.........2[continue with

the downloaded Q.6a] Q.6b]

Ericsson

Labs'

APIs?

6a. Which Ericsson Labs' APIs are you using? Mobile Java Communication Framework...... 1 Mobile Java Push......................... 2 Mobile Location..........................3 Mobile Maps ............................. 4 . SMS Send & Receive....................... 5 Streaming Media..........................6 Web Location.............................7
Web Ma ps .. ... ... ... ... ... ... ... ... ... ... .

8 an i n fo r m e d o p i n io n w hy you do no t us e t he E r ic s s o n Labs'

6b. D o yo u ha v e APIs? YES........1

N O. .. ... ...

To the NONO users:

Hi [NAME],

Supporting you the best way we can is important for us at Ericsson Labs. We are therefore initiating a study to evaluate and improve the Ericsson Labs offering.
You are registered on the Ericsson Labs site and we believe that you have ideas to share concerning why you are using/not using the site. We would therefore appreciate if you could take the time to participate in the study. This would be a great opportunity for us to get to know your opinions and thoughts regarding the site. Your feedback is of great value to us and will most definitely have an impact on the future direction of

61

the site as the portal is still in its beta stage. Information retrieved from the study will be handled anonymously and will be for internal use only. As a participant you will be compensated with a voucher. Online sessions will be held during November 16 to 27, 2009. They will take approximately 60 minutes of your time. The research process will be administered by the Master thesis student Sara Abramowicz under supervision of the Ericsson Labs team. If you would like to participate, please answer the questions below and reply to this email as soon as possible (no later than November 2). If you have any questions, feel free to send them to this address: sara.abramowicz@ericsson.com Kind regards, The Ericsson Labs team .............................................. 1. Specify your age <15........a 15-17......b 18-19......c 20-21......d 22-24......e 25-29......f 30-34......g 35-39......h 40-49......i 50-59......j 60-69......k 69+........l 2. Specify your gender Male.......1 Female.....2 3. Where 4. What 5. Have do is you you your currently current live? occupation? any of the Ericsson Labs' APIs?

YES...............1 NO.................2

downloaded

6. Are you using YES........ 1 NO......... 2

any

of

the

downloaded

Ericsson

Labs'

APIs?

..............................................

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11 Appendix II Discussion questions YESYES

Developer background How did you first hear about Ericsson Labs? What is your technical background (Desktop/Web/ mobile development)? If other please specify! Do you mainly develop applications on your own or are you part of a group? If you get the following to choose from, what would you say are your main areas of contribution when developing mobile applications? (Idea generation/Project leadership/Funding or commercialization/Program logic design/Graphic design/Coding/Testing and debugging/customer relation) On which platforms have you ever developed? Which, among the following, is the most important decision factor when you choose a platform to develop on? Required investments (fees/time/resources), available distribution channels, open source capabilities, expected return on investment The developing process Planning phase: Getting started What made you decide to register on the Ericsson Labs site? What is your main motivation with being active on Ericsson Labs, considering the exploratory (Beta prototype) status of the site? How easy is it to get started on the site? What did you need to know in order to get started? How can the starting phase (getting a key/access to source code/start coding) be made easier? Downloading and using tools What requirements do you have on APIs? How does the Ericsson Labs API that you are using fulfill those requirements? Is it easy to understand what the APIs offered on Ericsson Labs can be used for? What are you using the Ericsson Labs APIs for? In what ways does Ericsson Labs fulfill your requirements on a portal (technological/business related/community wise) and in terms of offerings (example code/tutorials/support)? Developing phase: Help and support What do you think about the documentation/ tutorials /example code offered for the specific API that you are using? What do you think about the quality of the forum to get help or feedback from the Ericsson Labs team or another member on the site? Is the response time in the forum and email quick enough? Is there a need for moderation in the forum? Publishing phase Where are you in the developing process? What is your plan after finishing the developing phase? How do you plan to expose your application? How important are showroom, publishing facilities, and payment support on a developer portal? Do you plan to make money out of your application? Overall evaluation of Ericsson Labs

63

What is good/bad/working/not working on the Ericsson Labs site? What is missing on the site today? What direction would you like the Ericsson Labs portal to take in the future? What expectations do you have on the Ericsson Labs APIs in the future, in terms of updates etc.? What are your thoughts on the structure of the site (combining mobile and web application development)? How easy is the site to navigate due to that?

12Appendix III Discussion questions YESNO

Developer background How did you first hear about Ericsson Labs? (From people in my personal social network/From people in my professional social network/From posts on social media forums/From Ericsson labs Tweets/Through a developer event/Advertisements on websites/Other) What is your background (technical)? (Desktop/Web/ mobile development)? Do you mainly develop applications on your own or are you part of a group? What would you say are your main areas of contribution when developing mobile applications (Idea generation/Project leadership/Funding or commercialization/Program logic design/Graphic design/Coding/Testing and debugging/customer relation)? On which platforms have you ever developed? Which is the most important decision factor when you choose a platform to develop on? Required investments (fees/time/resources), available distribution channels, open source capabilities, expected return on investment The developing process: Planning phase - Getting started [1st topic] So to begin with, I would like to know about your first experiences with Ericsson Labs! What was your main motivation to register on Ericsson Labs, considering the exploratory (Beta prototype) status of the site? How easy is it to get started on the site? How can the starting phase (getting a key/access to source code/start coding) be made easier? Downloading and using tools [2nd topic] Why are you using/not using the APIs offered on Ericsson Labs? What would make you start using them? Is it easy to understand what the APIs offered on Ericsson Labs can be used for? What requirements do you have on APIs? How does the Ericsson Labs API(s) that you are using fulfill those requirements? Cont. Downloading and using tools [3rd topic] In what ways does Ericsson Labs fulfill your requirements on a portal (technological/business related/community wise) and in terms of offerings (example code/tutorials/support)? What expectations do you have on the Ericsson Labs APIs in the future, in terms of updates etc.? Developing phase Help and support [4th topic] 64

What do you think about the documentation/ tutorials /example code offered for the specific API(s) that you downloaded? What do you think about the quality of the forum to get help or feedback from the Ericsson Labs team or another member on the site? What about the response time in the forum and via email? Overall evaluation of Ericsson Labs [5th topic] What are your thoughts on the structure of the site (considering the combination of mobile and web application development)? How easy is the site to navigate due to that? What is good/bad/working/not working on the Ericsson Labs site? What is missing on the site today? What direction would you like the Ericsson Labs portal to take in the future? Is there a need for moderation on the portals forums?

13Appendix IV Discussion questions NONO

Developer background How did you first hear about Ericsson Labs? What is your technical background (Desktop/Web/ mobile development)? If other please specify! Do you mainly develop applications on your own or are you part of a group? If you get the following to choose from, what would you say are your main areas of contribution when developing mobile applications? (Idea generation/Project leadership/Funding or commercialization/Program logic design/Graphic design/Coding/Testing and debugging/customer relation) On which platforms have you ever developed? Which, among the following, is the most important decision factor when you choose a platform to develop on? Required investments (fees/time/resources), available distribution channels, open source capabilities, expected return on investment The developing process Planning phase: Getting started How come you registered on the site? Did you experience any difficulties registering on Ericsson Labs? What was your main motivation to register on Ericsson Labs, considering the exploratory (Beta prototype) status of the site? How easy is it to get started on the site? How can the starting phase (getting a key/access to source code/start coding) be made easier? Downloading and using tools: offerings on Ericsson Labs Why are you using/not using the APIs? What would make you start using them? Is it easy to understand what the APIs offered on Ericsson Labs can be used for? What requirements do you have on APIs? How does the Ericsson Labs API(s) that you are using fulfill those requirements? In what ways does Ericsson Labs fulfill your requirements on a portal (technological/business related/community wise) and in terms of offerings (example code/tutorials/support)? Developing phase Help and support 65

What do you think about the help and support features offered on the site (forum, documentation/tutorials/example code)? What do you think about the quality of the forum to get help or feedback from the Ericsson Labs team or another member on the site? Is the response time in the forum and email quick enough? Is there a need for moderation in the forum? Overall evaluation of Ericsson Labs What are your thoughts on the structure of the site (considering the combination of mobile and web application development)? How easy is the site to navigate due to that? What is good/bad/working/not working on the Ericsson Labs site? What is missing on the site today? What direction would you like the Ericsson Labs portal to take in the future?

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14Appendix V List of respondents

Respondent A, bulletin board on Ning, YESNO Respondent B, bulletin board on Ning, YESYES Respondent C, Skype chat interview, YESYES Respondent D, telephone interview via Skype, YESYES Respondent E, bulletin board on Ning, YESNO Respondent F, Skype chat interview, YESYES Respondent G, Skype chat interview, YESYES Respondent H, Skype verbal interview, NONO Respondent I, Sametime chat interview, NONO Respondent J, Sametime chat interview, YESYES Respondent K, bulletin board on Ning, YESNO

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15Appendix VI Skype chat transcripts

Respondent F

68

Respondent G

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Talent Management Employee Retention

TABLE OF CONTENTS
ACKNOWLEDGMENTS......................................................................................................3 ABSTRACT......................................................................................................................4 INTRODUCTION...............................................................................................................8 1. The Research Area...........................................................................................8 2. The Objectives of the Project.............................................................................9 3. The Research Question .................................................................................10

METHODOLOGY ............................................................................................................12 THEORETICAL FRAMEWORK ..........................................................................................14 1. TALENT MANAGEMENT...............................................................................................14 1.1. The Concept of Talent Management........................................................................14 1.2. Why is Talent Management Important?...................................................................19 1.3. Theoretical Model of Talent Management................................................................23 1.3.1. The Identification of the Pivotal Positions... ......................................................24 1.3.2. The Development of the Talent Pool.....................................................................25 1.3.3. The Creation of the Human Resources Architecture.............................................26 1.3.4. The Employee Performance.................................................................................27 1.4. The Recruitment of the Talent Pool.........................................................................28

1.5. The Development of the Talent Pool................................................. ...

..30

1.6. The Retention of The Talent Pool..........................................................................32

2. TALENTED PEOPLE.....................................................................................................35 2.1. Definition of Talented People..................................................................................35 2.2. Which are the Signs of the Talents?........................................................................36 2.3. Self Actualization....................................................................................................38 2.4. The Educational System.........................................................................................40

3. CREATIVITY...................................................................................................................41 3.1. Definition of Creativity............................................................................................41 3.2. Creativity Sources...................................................................................................42 3.3. The Relationship between Creativity and Innovation...............................................42 3.4. Skills of Creative People..........................................................................................43 3.5. Barriers to Creativity...............................................................................................43 3.6. Leadership Style to Foment the Creativity..............................................................45

4. EMPIRICAL FINDING AND ANALYSES..........................................................................46 4.1. Empirical Study: Zerogrey.................................................................................46

4.1.1. Description of Zerogrey.......................................................................................46 4.1.2. The Location: The Digital Depot..........................................................................48 4.1.3. The Analysis of Zerogrey's Talent Management Strategy....................................51 4.1.3.1. 4.1.3.2. 4.1.3.3. 4.1.3.4. The Recruitment Activities of Zerogrey..........................................................53 The Development Activities of Zerogrey........................................................54 The Retention Activities of Zerogrey..............................................................55 The Conclusion of the Talent Management of Zerogrey...56

4.1.4. The Talented People and The Creativity in Zerogrey..........................................57 4.2. Empirical Study: Google...................................................................................59

4.2.1. Description of Google........................................................................................59

4.2.2. Google: The Talent Management Excellence....................................................60 4.2.2.1. 4.2.2.2. 4.2.2.3. 4.2.2.4. The Recruitment Activities of Google..............................................................62 The Development Activities of Google............................................................62 The Retention Activities of Google.................................................................64 In Conclusion, an Example of Talent Management Strategy.........................66

4.2.3. Talented People in Google, The Googlers............................................................67 4.2.4. How Can They Get Their Creativity?....................................................................68 4.3. Conclusions and Comparisons between Zerogrey and Google..........................69

RECOMMENDATIONS FOR DE FUTURE...........................................................................71 OUR EXPERIENCE..........................................................................................................71 REFERENCE LIST...........................................................................................................72

TABLE OF FIGURES
Figure 1. Model of Collings and Mellahi..........................................................................24 Figure 2. Maslow's Pyramid...........................................................................................38

INTRODUCTION
1. Research Area
Our thesis project is about the umbrella Breeding and Nurturing Talents, this theme has a multitude of different aspects or view points. For this reason, we will try to delimit our study in a research question to do it possible to perform with the research methods that we will choose. We have focused our thesis on a conceptual structure based on the development of our understanding of talent management and talent people, with a special point dedicated to the creativity. We will focus our attention on the problem of companies exploiting all the imaginative potential of their employees, and we will provide some ideas to solve it through treating employees as extraordinary innovators giving them tools to develop their creativity. In our empirical findings and analysis we have studied two companies, Zerogrey and Google, which use the talent management in a very different way and that they know that their principal key asset is talented people. We are going to write about talent management which is a contemporary problem, because we have observed that there is a positive relation between talent management process and business strategy to obtain the success in organizations. According to the surveys of Price Waterhouse Coopers (2009) the CEOs consider that the talent management of employees is a relevant issue to develop even in a period of crisis and also, that can be a source of a sustainable competitive advantage, where employees are the key assets. In addition, we think in one question, why is talent management arising more and more now in the organizations? When throughout all the history, organizations always have tried to find people with talents. The answer to this question is that nowadays, companies are using talented management and talented people to obtain a source of sustainable competitive advantage for the organization. Thus, the firm obtains as a result to be always in the first position if we compare with the position of the rest of organizations, which do not use or develop talent management. Moreover, this concept is important because we are in a context characterized by the business world is highly competitive and rapidly changing. The study of talent management is necessary, due to the lack of theoretical development area and the definition of this concept and its limits and we know that can exist different understanding of the talent management concept, but we would like to present our own understanding. According to Collings and Mellahi (2009) in a survey made in United Kingdom only a 20% of Human Resources Professionals work

with a clear idea of what talent management is, but a 51% of them do not take into account this concept, although they know that it is significant for firms. The second main issue of our research area that we would like to study is the concept of talented people. With this definition we would like to stress the differences

between talented and

specialized people . Besides, we would like to relate these

characteristics of talented people with our conception of a leader and also, the leadership style which promotes the existence of talented people in the organizations, which is the democratic leadership. In this part of our research we want to note the link between talent development and the educational system. The traditional educational system was very focus on learning theories and concepts rather that developing skills as creativity and learning by doing, It means that this system created specialized people more than talented people. Nowadays, the society is aware of this lack of talents and this is reflected in the current educational system changes, one example of that is the Bolognas Plan that we will explain later. Furthermore, we consider the creativity a very relevant talent inside talented people and that is why we are going to explain this talent with more detail. In our opinion, all these opportunities can lead employees to abuse these advantages to develop their own interests and not to contribute to fulfil the general interest of the enterprise, it means, the mission and purposes. Thus, the leader has to control his or her workers but without using authoritarian structures. This leadership style would undermine the work done to encourage imagination, which after all, is one of leaders aims. The leader hence has to seek other ways to exercise control, such as obtaining that employees share the leaders vision. Alternative manner committed and motivated them so the leader gets the loyalty of workers. It means that the leader should use all skills that characterize her or his position as communication, influence, motivation, and charisma and so on, but in a new way that involves the management of talents management of creative minds. and the

2. The Objectives of the Project

Our project contains a number of objectives, some of them more practical and others more academic because, of course, we would like to contribute with our study and our conclusions to the creation of knowledge. And also we want that our project would be useful in the real business world, for this reason, we would like to give practical

advices to companies to exploit the full potential of employees to be imaginative people. Also, with this project we want to achieve a deep understanding of the research topic. Our investigation will be based on fields of human resources and administration.

3. The Research Question

Our research areas are talent management, talented people and the creativity that we have mentioned above. The talent management helps to exploit all the potential that talented people have and they do not develop, due to maybe conditions in the company are not suitable, employees do not want or the leader do not know how to achieve it. Conditions such as flexible work, fluent communication without bureaucracy, casual business environment, team work, diversity in teams, dynamic atmosphere, delegation of decision power and so forth. This means that the organization offers plenty of development opportunities to its employees. And also it gives the freedom to think, the freedom to act, the freedom to communicate their imaginative and sometimes bold solutions. The objective of these conditions, which the organizations give to employees, is to break with the grids of acting and thinking that people develop throughout all their life in the society and to regain the imaginative and creative way of thinking of children and also the self confidence that characterize them, but relying on the knowledge of an adult. Nevertheless, these are very expensive actions not only economically but also in terms of time, therefore the company has to ensure that the investment reverses through the high performance of its employees. In this sense, what kind of employee is hired in the recruitment is a factor to take into account, because he or she should not only have this creative potential, but also the employee must know how to assume responsibility. In addition, when employees are working, firms have to develop them and also retain them, it involves certain investments. Therefore, they have to take care of this inversion with the employees' retention, but we do not mean a forced retention we mean a voluntary retention, because employees have to be motivated and engaged with the organization. Summarising all of these ideas, we will investigate the understanding of talent management and talented people and our research questions is: how can any organization develop a talent management strategy to obtain superior results? And we mean that this strategy is always adapted to companies needs, as we will observe in the study of two companies, Zerogrey and Google.

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METHODOLOGY
The methodological approach that we have used is the grounded theory approach,

which is a process that allows theory to emerge out of the research material rather than being forced out of it by the use of a predetermined idea or theory and it implies that theory is implicit in the material and can be drawn out by an iterative process of coding and comparison (Fisher et al., 2007, p.123). We have used that approach because we want to create knowledge about Breeding and Nurturing Talents specifically about the talent management, talented people and the promotion of the creativity among employees. In addition, we want to give a new view point about this topic. At first we have built a theoretical framework, according to Fisher (2007, p.126) this task is fitting together all the concepts like in a jigsaw puzzle. We have made it with the information that we obtained of books, academic articles to develop concepts, thus we have a strong frame for our empirical studies. Then, we have studied two Case Studies that we have related with the framework. Finally, we have redefined the theory taking into account the relation between the theory and the empirical findings. As we have said before the two companies that we

have analysed are Zerogrey and Google. We have chosen Google because it is a big firm which has a huge investment in talent management and talented people. Also they are really innovators in the field of human resources such as motivation, recruitment, development, retaining and much more. We have chosen Zerogrey, which is a small enterprise but they base their strategy on talented people also. The objective is to test if the talent management can be adapted to all kind of organizations. According to Strauss and Corbin (2008) the grounded theory uses qualitative methods to collect and to analyse the data . Our topic is much related with the human

behaviour and the human understanding; hence to investigate them we can not use quantitative methods. Moreover, the ambiguity of talented people does not have place in this kind of quantitative techniques. The encouragement of the creativity and the imagination in talented employees has too many social aspects, which are interrelated between them, producing the existence of different understanding of the reality; it means that this is subjective. The process to apply this approach commences with the data collection. In this stage we have done some interviews, we have realized some kind of observations and also we have looked for information in several secondary sources (Strauss and Corbin, 2008).

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In the case of Zerogrey we had interviews and open dialogue with four people: the CEO, Guido Meak, and also with three employees: the responsible for marketing, the programmer and the responsible for order management and customer service. And also we did direct observations in Dublin one of the head quarters of the company. In the case of Google, we have utilized several sources of secondary information as videos and photographs, which show the working environment and the culture and the philosophy of the firm, that impulse the development of talents. In addition, we have used several academic articles, thesis and books. We have used secondary sources because Google is already a relevant company in this area and we could find a large and good quantity of information without direct contacting with the firm. According to Strauss and Corbin (2008), the analysis of the data is the second stage where we have interpreted the data to redefine concepts that we studied in the theoretical framework looking at them since a practical point of view, such as talent management, recruitment, motivation, talent development, talented people and much more. In these step, we have looked for the information in the data cues, which address us to see how companies achieve the breeding and nurturing of the talents as creativity of their employees through talent management. The two last steps are the theoretical integration where we have joined the theoretical framework with the empirical data to do the analysis of two case studies and thus, we have obtained the conclusions. Finally, we have redefined the theory, where concepts that we have obtained from the analysis of the data are interrelated between them and thus, we create knowledge of our subject (Strauss and Corbin, 2008).

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THEORETICAL FRAMEWORK 1. TALENT MANAGEMENT

1.1. The Concept of Talent Management
In this part of the research we will give our understanding about what talent management is, which is a relatively new concept but its components have been in Human Resources and Management literature for a long time. Now we want to join all these components to shape a formal definition of the concept. The concept of Talent Management stems from the concept of war for talent, which was first used by a group of McKinsey consultants in 1997. The concept reflects the change that was beginning in Human Resources needs and practices in response to the new competitive and dynamic environment. War for talent is a real war which employees during the 1990s (Collings and Mellahi, 2010). Talent Management concept has been developed during the time; in it first stage, it was a concept only related with the HR practices as recruitment and succession planning. It was a new definition or concept of the HR activities that included the prevision of the future need of workers in the company. A second stage of the concept was related with the staff needs and their progression into the organization; here the Talent Management paid more attention to the personal needs of the employees to achieve their welfare. In its third stage or conception the management of talented people was included. The actual meaning of the concept introduce the idea of key positions in the organization, which have to be identified first and later filled with talented people, the idea is to mach the right person with the right job to achieve a superior performance and the motivation of that employee (Collings and Mellahi, 2010). As we can see in the article Turning into Talent Management by an unknown author, there are two different conceptions about what is talent management. The first one is an exclusive definition, where the object of the talent management strategy will be only starts between organizations to attract, develop, motivate and retain the talented

the superior people in the organization. The second one is an inclusive definition, where all employees of the organization are considered talented people and all of them are to object of the Talent Management strategy. Nevertheless according to Lundgren, M (2009-2010), a concept can has a number of different understandings, because it depends on what aspect or feature the individual

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focuses his or her attention. That is why there could be a number of different definitions of Talent Management and a number of different ways to develop it but all of them has to share the essence of the concept which is, in our opinion, that talent management is a strategy to treat organization employees in the way that motive them to exploit all the full potential of their talents to accomplish a superior performance for the company. We will base our explanation of the concept of talent management on the definition of Davis et al, because it is the most close to our own understanding and it is explained in a very clear and organized manner. According to Davis et al (2007) the talent management is the set of activities related with the recruitment, development and retention of talented people who are able to achieve a superior performance in a particular company, the talent management activities should be conducted through a strategy, it means, a deliberate and structured corporate approach to realize the talent management (Davis et al, 2007,

p.1). The key factor of this definition is that we are looking for a superior performance, it means, to hire people able to do the work is not enough, the talent management strategy is defined to create a talent pool in the organization which will give to the organization a sustainable competitive advantage based in its employees. We believe that nowadays IT structures and tangible resources are available for all companies to a greater or lesser extent and to access to them is relatively easy through the inversion that is why they can provide a competitive advantage to the company but not for a long time, sooner or later, the competition can mimic the processes or products. It means that the only way to achieve a sustainable are the intangible resources as the talent of the workforce. Talented people are not easy to manage, they form a demanding group which needs the

right stimulations to exploit their big potential, they are high achievers, even they are able to run their own company, who are expecting a successful career in the organization, that is why the company has to give that to their talent employees if it wants to keep them (Davis et al 2007). The superior performance of the workers is not accomplished by chance, the talent management requires an effort of the organization, and this effort is shaped by the investment required to the activities and also the time to plan the strategy and to execute it. According to Davis et al (2007), to see the payback and the yield of the Talent Management investment is a difficult task, because the result is hardly quantifiable, any kind of investment has risk which must be calculated to decide if the investment is profitable or not, the precise calculation of the financial risk in a Talent

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Management investment is impossible. This fact makes the justification of the investment tough. The outcome is to accomplish the excellence in all areas of the organization doing it more effective in the long term, that is a qualitative result which can be seen in the profit but it influence is not direct. One way to estimate the financial

risk is to look for the opportunity cost of not making the Talent Management investment, it means, to examine the consequences of not adopting the talent management strategy, overall in a long term. One cost that we should not forget is the time; according to Collings and Mellahi (2009), the process of applying these activities takes 20% of the organizational time. This time that is not used in the operational activities, so, it costs capital, but if we look in

a long time, the talent management will give to the organization more effectively in the process, more agility of the stuff to learn fast and a clever workforce able to take fast, news and good decisions. According to Davis et al (2007) there is two models or mentalities to run a company, first the survival model or mentality which is about to do the task good enough to deliver it in the right moment because the business world is full of deadlines, the second one, which fit more with the essence of the talent management is the achieving mentality or model. This is about to do the things with the highest performance to get the best result, it means that the talented people find the best way to get the aim, not one way more. That is why the talent management has to be integrated in the corporate culture and be supported by all organizational members. The culture of an organization is like the personal traits of a person, it defines the way of it behaviour, hence, if we want a organization which seeks for a complete development of their employees and which nurture and breed their talent, its values should be overall the high appreciation and respect for the individual, the building of team spirit and leadership, the staff development, training, coaching and mentoring. The management style has to be a combination of hard skills as the aim of achieving the goals and soft skills as developing and managing people paying attention to their necessities and the best organizational structure, which has impact in the talent development strategy, is a flat and flexible structure to facilitate a high level of traffic of ideas and to make that employees take small responsibilities and thus developing their talent. According to Davis et al (2007), that strategy has to be integrated in all levels or function it of the organization. That is a hard issue, according to Collings and Mellahi (2010), the 50% of top managers across the global think that there is a lack of alignment between talent management strategy and the corporate strategy. That is why, talent management is not only an issue of Human Resources Department, and the executive team is also involved. The executive team task in the talent management

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strategy is to define which kind of talents or skills the organization is needing now or it will need in the future. This issue depends of the corporate strategy; the direction that the organization wants to follow and the objective that it wants to accomplish define the kind of people who should shape the workforce. For instance, if a company wants to increase its market share, it will have to look for people with special talents in sales or marketing and also result seeker, another example is if the company's goal is to develop new products or new processes to investigate, hence the creativity and innovation are the skills which should be searched and the right people to do that is a developer mind. Another task of the executive team in the talent management strategy is to reflect the needs of the individuals on the organizational objectives, thus the staff will work motivated and to accomplish the firm goal will lead to accomplish their own goals. According to Davis et al (2007), The HR department has to develop all the operational activities of the Talent Management. It has to prepare an outline with the requirements of the top line, develop a plan of actions and prevision of the cost and finally it has to implement that plan. To hire a Talent Management specialist could be

very useful to lead the HR professionals to carry out with the plan. The activities that HR department has to develop are related, firstly, with the recruiting of the talent pool, it involves the identification and evaluation of talented people with high potential in the organization but also in the external labour market and also to hire or to promote them. Secondly, the HP professionals have to develop the talent pool; it means to train them in the skills that the company needs for the future to exploit their full potential and to direct it entirely to improve the organization. The development of the talented people is breeding and nurturing their talents and can be conducted through training or coaching, and through formal or informal way of learning. And finally, the most important task of HR professionals is the retaining of the talented pool, because they are an inversion. The retention is not only about the salary or about economic advantage. It is also about the motivation and commitment, which is achieved with creating a good environment and culture shared for everybody. According to Berger and Berger (2004), the function of talent management

professionals can be divided in four different tasks. The first one is the forecast, which is the foresight of the possible promotion of employees, according to their income, their past experience and the talent showed, in this manner the Talent Management professional can see which employees are talented people and include them in the talent pool. The second task is to create measurement scales for the potential performance. The third one is to identify the core competences that the organization needs and fostering them in the employees, between these powers, it is possible to find the result orientation, the communication skills, the creativity, the innovation, critical

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judgements, customer orientation, leadership, team work and so on. And finally the task of the Talent Management professional is to select a coaching guide, who

last helps

the talent pool to develop those competences and to keep their motivation. We can associate these four tasks with each of the activities of management talent as above, the two first are more related with the recruitment of the talent pool, defined the third

one is part of the development of the talent pool and the fourth one is part of the development and also part of the retaining of the talent pool. Nevertheless we think that this explanation of the Talent Management is not complete because it forgets other important activities as for example the definition of the key positions, the training, the plan of promotion of talented employees and the importance of a good work environment. According to Davis et al (2007), there are three elements that shape the Talent Management Strategy; they are the recruiting, the development, which include the nurturing and breeding, and the retention, which is about motivation and commitment. In the following parts of the research we will explain with more detail each one. In conclusion, Talent management is a strategy which involves all levels in an organization and it is about recruitment, development and retaining the most talented people inside the organization. The aim of the strategy is to create a talent pool with the talent potential and skills that the company needs or will need. Members of the talent pool are able to achieve a superior performance for the firm and thus to have a sustainable competitive advantage, that is why it should fit with the corporate strategy. With a right Talent Management strategy the company will became in a learning company, where employees are knowledge workers, it means that they have the knowledge required to do a very good job, but also it means that they learn quickly and the can apply that knowledge in a practical and effective way, finally they have the ability to transfer that knowledge to others in a useful and structured way. The organization will give tools to employees to do that through the Talent Management activities, because it is aware that the outcome depends largely on the competence of their employees, so the firm will take the appropriate steps to ensure their training and their potential exploitation (Davis et al, 2007). To summarize our understanding of Talent Management, we can say that it is a part of the corporate strategy, because it is developed at the same time and with the same objective, which is the accomplishment of the mission of the organization, that is why the Talent Management is not only a issue for the HR department and it has to be integrated within all organization. The talent management does not have a fixed structure to develop; each company has to develop their own way of Talent

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Management strategy to fit it in their own corporate strategy, with their own culture and structure. An important aspect to take into account is that the talent management is an investment in intangible resources; hence its possible results have to be analyzed before to start with its application. The expected outcomes are a superior performance of the workforce and a sustainable competitive advantage based on their talent. Later we will develop with more detail which the three elements of the talent management are, the recruitment, the development and the retention of the talented people.

1.2. Why is Talent Management Important?

This part of our dissertation is about why Talent Management is relevant for the companies. For us the talent management is also important because there is a lack of theoretical development area in the understanding of this concept and its limits and for this reason we would like to study it. First, talent management is a contemporary problem for managers in 21
st

century, as we have observed in the article Talent

Management Must Mesh With Business Goals for Post-Recession Success (2010) by unknown author. We saw here that the 73% of the executives in United States of America agree on the positive relationship between talent management process and business strategy to obtain the success of the organizations. It means that companies recognize the importance of talent management integration with business strategy to get the organizational excellence. Thus, if we want to obtain this organizational excellence we have to carry out the talent management process. We should keep three factors to create and to sustain the success in the firm, the first factor is the creation of a set of career paths, and development and reward plan for the most talented people. This will ensure the high-quality in the company, it means that the organization will achieve and maintain its superiority. The second factor is the identification and development of key positions, which are the jobs critical to organizational current and future success as we have seen before, and then the replacements if there will be future voids for a small number of these key or pivotal positions. This step maintains the continuity in the organization. The last factor is the segmentation of the talented pool into each investment category and managing the investment in each category appropriately. It means that the organization should do a classification of the investment in each employee based on his/her actual and/or potential for adding value to the company (Berger, L A, Dorothy R, 2003, p.3). Moreover, as we have seen in the surveys of Price Waterhouse Coopers (2009), the CEOs consider that the talent management of employees is a significant issue to develop even in a period of crisis. This means that the worldwide CEOs agree on the investment in talented people now and in the future to solve the crisis, taking into

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account that this period of recession has different patterns and impacts in each country. For instance, Eduardo Elsztain, the President of IRSA Groupan, thinks that the current crisis is another in the entire crisis that Argentina has suffered and then, they do not have to be afraid of it because they know how to face it. Therefore, we think that the organizations which invest in talents will be the market leaders after the downturn. And also we consider that Talent Management is important because more and more organizations are speaking now about it. We ask themselves why are organizations taking more into account the talent management now? And the answer to this question is that throughout all the history the talent management has been used, because in all the organization, from Greeks till now, they always have tried to hire or select the best people for their activities, it means people who have talents. Nevertheless now they are speaking more about it because the companies have realized that the talent management can be a source of sustainable competitive advantage, which allows to be a pioneer or in the first position if they compare with organizations that do not use talent management, this means to be a successful organization. One argument against the investment in talents could be the marketing approach (Rodrguez I, 2006, p.34), which tries to sell everything that has been produced. In this way we could believe that the organization does not have to manage talents, just the firm has to convince consumers to demand all the products that the organization offers, this activity is carried out by the marketing department. Nevertheless, the marketing department consists of people, who should have talents even if the company wants to implement the marketing approach or not, that is why the organization needs to invest in people and in their talents, because the organization needs compete people who performance well their job. Moreover, we should take into consideration that an organization has to satisfy the needs of consumers and adapt to their behaviours, so they have to invest in talented people who can discover these needs and also who, can push the market to innovate always. Then, an adequate talent management can be a sustainable competitive advantage for firms to face the recession and the radical changes of the environment. As a result companies should have the right tools to survive in an environment like this. In a world where innovations are increasingly faster and faster, where to find fields to innovate are harder and harder, we see the importance of the investment in talents, because if companies want to escape of the high competition of the industry now they have to invest in talent management, in the full potential of people and one way to do it is through the innovation (Bjrling, 2010). For this reason we consider that nurturing and breeding talents is necessary for the organizations.

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The business world has also rapid changes and its market is getting bigger, every time there are a larger number of companies in all the countries, which is the globalization. Then there is a highly competition that is why we can not be always efficient, thus organizations should invest in talent management to be able to innovate and to be in the first positions in the market (Bjrling, 2010). The complexity of this environment leads to seek sustainable competitive advantages for the enterprise, which rest less on the product or service, but in intangible resources such as talented people, that is why they are the key asset in the organization. Therefore, the leaders task is to facilitate and promote the imaginative potential of employees and address it to achieve the renovation of the organization. We consider that the most important challenge for the organization is the maximization of the organization's human capital (Mellahi, Collings, 2009). And we know that a competitive advantage is not found, the company must make great effort to make it, empower it and bring it to the market; this means that they need to invest in the talent management to have key human capital. In addition, not all companies have competitive advantages and when they have them, not all firms have the potential to maintain these advantages (De Wit & Meyer, 2004), because the basement of the competitive advantages has to be the talented people as we will see later. Now, we will explain some situations in which the Talent Management is an important issue for the organizations: First, according to Davis et al. (2007), Talent Management is necessary when the companies would like to build winning teams which will be formed by talented people. The organization will use these kinds of teams to solve determinate problems or weaknesses in departments. For instance, if there is a problem in the Financial Department, the organization will build a team to solve this determinate problem and they are going to solve it, because they are competent and experienced people in this field. Second, these authors think that when the company needs to plan for the future, it means that they can go ahead to the changes in the environment, becoming in the pioneer of the market. Also they should use Talent Management if they want to adapt well to these external changes, because they usually will consider all the possible situations in their future. Thus, the organization is going to obtain business agility and can take advantage of the emerging opportunities of the environment. In addition, an increasingly large number of firms are establishing a Talent Management Department, it means that they will need it for the future and because they think that this department is important for the successful of the enterprise (Davis et al., 2007).

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Finally, as we have explained before, the environment is complex and uncertain, that is why the organizations ought to have agility and flexibility to adapt to the changes, such as in the costumer behaviour, in the client spending or in the new trends of consumption (Davis et al., 2007). Furthermore, we have to take into account that there are two kinds of change: the reactive and the proactive. The reactive change happens when an organization makes changes in its practices after some threat or opportunity has already occurred. It means that the firm could not control these change before occurring. Proactive change involves actively attempting to make alterations to the work environment or work place and its practices. They are trying to avoid a potential future threat or to capitalize on a potential future opportunity. This means that the company controls the changes (www.referenceforbusiness.com). Reactive and proactive changes cause the decrease of the confidence both within the enterprise and among consumers. Thus in the company we need a Talent Management Department formed by talented people, which allows to adapt to the changes in the environment. For example one change in the environment of a company can be a merger or an acquisition, in this situation the organization needs to be flexible to join the cultures and values of the two firms, their processes and their products and so forth. To overcome both reactive and proactive changes the organization needs to be flexible and rapidly working, and for this they need talent management to build a workforce able to face these changes. To summarise, there is a positive relationship between business strategy and the talent management processes, because it promotes the successful of the organizations. That is why even in a period of recession, companies are investing in Talent Management, because that investment will usually allow them to be the leaders market after the downturn. Then, Talent Management can be a source of sustainable competitive advantage, where talented people are the key assets. In conclusion, according to Drucker "successful enterprises create the conditions to allow their employees to do their best work (Thurm, Lublin, 2005). It means that if the organizations want to be successful, they should invest in the talent management of their workers to obtain some conditions in the company such as good environment. Thus,

these employees are going to have talents, thanks to the effort of the company and they will try to do their best work, because they will be motivated and engaged organization mission (Snell, 2005). with the

1.3. Theoretical Model of Talent Management

As we have seen, Talent Management is a strategic activity of the company which is taking more importance in recent years, but there is a lack of the theoretical

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development area in this field, and also there is not a clear definition about what Talent Management is. According to Collings and Mellahi (2009) it is possible to identify four different streams of thought about the meaning of Talent Management. The first one relates talent management with Human Resources only, saying that it is the substitute of the HR strategy and limiting the focus on recruitment, leadership development and succession planning. The second stream is focused no more than on developing talent pools; it means to manage the progression of all employees through the positions in the organization and also this approach distinguish the Talent Management from the Human Resources Management. The third stream, which is the most spread out, is focused on the management of talented people, saying that the entire staff has to be formed by very talented people. These authors see some limitations to this stream, because high performers are not necessary in all organization roles, that is why the great investment required to recruit, develop and retain that kind of employees is not efficient. Furthermore, talented people have large ambitions about their career, which are impossible to fulfil for all employees in an organization because there are not manager positions for all of them. Hence they will not be motivated to implement their full potential and achieve organization goals. For all these reasons Collings and Mellahi recognize a fourth stream of thought for talent management, which is focused first on identifying the key positions into the organization that can provide it of a sustainable competitive advantage and then developing a talent pool of high potential and high performing talented people to fill those roles. These activities would be supported by a right HR architecture (Collings and Mellahi, 2009). The authors develop a theoretical model based on that stream which explains how their view of Talent Management can provide the firm performance through the work motivation, organizational commitment and extra role behaviour. The model is divided in three steps or tasks, which have to be done to develop an efficient Talent Management strategy. Moreover this strategy has to be integrated with the general strategy of the company identifying talents or skills needed to those key positions right now but also the talents or skills that the company will need in the future, starting to nurture members of talent pool in this way. In the figure 1 we can see the model developed by Collings and Mellahi.

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Fig. 1: Model of Collings and Mellahi (2009)

1.3.1. The Identification of the Pivotal Positions

The first steep of the model is the identification of the pivotal positions in the firm, which are jobs where the quality of work is highly dependent of the employee who sits. To recognize that pivotal positions, the management team has to classify the different tasks based on the potential results to be obtained, not based on the inputs required to do the job, because in those jobs a high potential employee is needed to obtain the highest output due to the result doesnt depend of another factors like IT structure or the invest on tangible assets. That is why a pivotal position is not necessarily a top position into the organization; it can be one in the bottom line. These key or pivotal positions have something special or unique which make a difference with other competitors and they are the source of sustainable competitive advantages (Collings and Mellahi, 2009). The identification and definition of the pivotal positions is a key factor to success in the talent management strategy. It is the started point to define which kind of employee and what kind of skills the firm needs in order to find the correct members of the talent pool. Other reason to identify the pivotal positions is the effective investment in the workforce. Recruiting, developing and retaining talented people have a high cost. That is why; the firm has to be sure that the investment will be recovered in the form of high performance and sustainable competitive advantages. This model suggests the realization of investment in talent management activities only for the

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pivotal positions and to avoid the over investment in non-pivotal positions, because those are the investments which bring value to the organization. The risk of this investment is related with the difficulty involved in identify the right pivotal positions and consequences of doing it wrong (Collings and Mellahi, 2009).

1.3.2. The Development of the Talent Pool

The second steep or tasks of the Talent Management Strategy, according to the model of Collings and Mellahi (2009), is developing a talent pool. A Talent Pool is a group of high potential and high performing employees who will fill the pivotal positions, to create that, HR professionals have to identify the talented people inside the organization. In addition, not all employees are high performers, so not all employees will be members of the talent pool. It does not mean that the less performers should leave the organization, but they will not occupy any pivotal positions. To look for inside the organization is not enough to generate the talent pool, authors recognise the potential of the external labour market to have good candidates who introduce new tendencies and new ways to work. Relating with that issue, Collings and

Mellahi (2009) introduce the idea of boundaryless careers, which is the opposite of organizational careers and fosters the employee mobility between different

companies, allowing them to develop a broad range of talents. The organizational effectiveness can be increased with that kind of career movements into a network of organizations which also help to the talented employee to be more motivated giving them new challenges and opportunities to improve. Lastly, Collings and Mellahi (2009) show that the way to develop this talent pool is not recruiting the best people and then, create or find a place for them into the organization, because to have the best people does not ensure the success, they also have to be in the right place at the right moment. Hence a talent management strategy should be linked with the general strategy of the firm. In conclusion the process of developing a talent pool is more about, first identify the future business necessities on skills, capabilities and knowledge which are not presented in the organization currently and then develop that in talented employees of the firm or look for them in the external labour market.

1.3.3. The Creation of Human Resources Architecture

The third and last steep or task defined by Collings and Mellahi (2009) in their model is creating a differentiated Human Resources architecture, it means designing a set of Human Resources (HR) process or activities to accomplish the two other steeps of the model and to improve the organisational performance and effectiveness.

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There are two streams of thought about how designing the HR architecture, the first one is a general configuration of HR practices which fit in all kind of organizations and improve all of them, the second one is a particular set of HR practices for each organization to align it better with the environment, with the strategy and with the vision. Collings and Mellahi prefer this second stream because their model fosters the union between talent management strategy and corporate strategy (Collings and Mellahi, 2009). The set of Human Resources practices are the following. Firstly, classify the different kind of employees inside the company depending on the value that they bring to the company and whether they are unique, because the high investment is going to be done in unique and valuable employees. Secondly, to fit the HR practices to the organizational context. The HR Department is responsible for seeking talents required in the pivotal positions defined by management team into the firm or recruiting them from the external labour market to create the talent pool. Finally, the last and maybe the most important HR practices are those related to retain talented employees through building motivation and commitment environment of talented employees into the organization and also through giving opportunities for development the full potential of the talent pool. To build the motivation the HR architecture has to attend to the employees interest (Collings and Mellahi, 2009). The key factors to the success of the Talent Management strategy are the talent employees motivation and commitment created. That strategy has indirect and positive impact in the organizational outcomes, both financial and organizational, because a good Talent Management Strategy provides to the organization the right workers in the right position and also it provides the right work environment which provoke the high employees performance, which leads to achieve superior outcomes and even a sustainable competitive advantage (Collings and Mellahi, 2009).

1.3.4. The Employee Performance

Collings and Mellahi (2009) explain the employee performance through a formula where the result of the employee depends on the ability, the motivation and the opportunity of the worker. P= (A, M, O) First of all, the Ability is the employees potential and the talent and knowledge that the worker has. This variable is accomplished by the definition of pivotal positions and

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the selection of members of the talent pool. Secondly, the Opportunity is the possibility that the organization give to the employee to contribute to the performance, challenging them to improve and to develop their skills, taking into account that talented people have high aspirations about their growth which have to be fulfil to exploit all their potential. This variable is accomplished by placing these employees in the pivotal positions which require a wider responsibility and take strategic decisions and also by giving them the opportunity to have a boundaryless careers or an organizational career. Lastly, the Motivation is the force, activities and the environment which leads the employee to work voluntarily in a certain direction and also make them feel good with that work and committed to the company. The organisational commitment is achieved when the workers are involved and identified within the organization. At this point values and the vision of the company play a major role (Collings and Mellahi, 2009). In conclusion, we agree almost completely with this Talent Management model defined by Collings and Mellahi and we want to base our investigation on it but we would like to discuss the issue related to what happens to employees who are not classified as talented people which does not mean that they are not good employees and people with a number of needs; we believe that they dont have to be out at all of the talent management activities. The non-talented employee does not have the aspiration to take responsibilities and to be promoted, but it does not mean that the firm does not have to take care of them. Taking into account that this kind of employees performs the operational activities in the organization, we can say that they move the machine that talented people design. That is why, the organization has to keep them motivated, of course it is not necessary to do a huge investment but it is to create a good environment, a good place to work, to keep them informed about how the organization is going on, to give them part of the benefits or other kind of advantages. Nevertheless maybe a good solution is to create a pivotal position where a talented person plays the role of the leader of those employees. That person has to keep them motivated, informed, and also he has to organize the work and to influence them to achieve the objective.

1.4. The Recruitment of the Talent Pool

The recruitment of the members of the talent pool is the first task of the Talent Management Strategy. The talent pool is a group of people who has special traits and will be developed by the organization and is the source of the future senior executives. The recruitment is the moment when the organization decides in which talented people, who are intangibles resources, will invest. To minimize the risk of a wrong hiring or promoting, which can are, according to Bruzeus (2010), between 1.5 and 2

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times the year salary of an employee, the team manager has to define key positions in the organization and which are talents or skills that these positions require. That is why the assessment of candidates has not to be done with lower recruitment standards that provide people only able to do a good work, which is the failure of a traditional recruitment. The organization has to select a criterion for the search and to develop a talent filter to evaluate the potential candidates (David et al., 2007). The source of talented people can be internal; it means people who are already working into the company, or external which is the labour market. According to David et al. (2007), the best way to create the talent pool is the internal source because this allows taking advantages of the learning curve, since these employees have already the knowledge about the corporate culture, and how the business processes work, thus the time required for the adaptation of new employee is not necessary, and he or she can be incorporated directly into the new position. Another reason to prefer the internal source more than the external that the authors give in their work is the negative effect in the morale of the workforce to hire a new manager outside the organization, because it can seem that the HR professionals have not found the talent required inside the organization and also, the staff can see the new manager as a strange. For this reason the authors say that the external recruitment has to be managed carefully and it only has to be used when the talent searched is not inside the organization. However, we see some advantages in attending to the external labour market to form the talent pool. The organization does not have to leave it just as the second option, other ways they will loose a number of very good candidates. The external source can

introduce new blood inside the organization, it means, new ways to think and to behave which can renew the process and also it introduces a fresh approach and a new knowledge, which can be transferred to other members of the organization. The external pool is essential if the company wants to provoke a proactive change in the organization but it is also very important to be able to react in a creative way to the changes in the environment and thus to stay ahead of competition. To be able of hire the right talented people for the key position that we have identified before, the HR professionals should design a talent filter or a criterion to do the selection. According to Davis et al. (2007), one tool to evaluate the candidates is the talent search matrix, which shows different combinations of qualitative and quantitative elements, skills or traits that show the image of the employee that the company is looking for. This matrix allows the recruiters to focus on the characteristic that are required not on the job that has to be done.

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The matrix defines six elements or aspects to shape the image of the person needed, they are experience, profile, qualification, expertise, potential and quantification. These can be divided in two groups, the three first, experience, profile and qualification, are objective aspects which refer to situations of the past or the present and they are easy to measure. The three second, expertise, potential and quantification, are subjective aspects which refer to the future development of the person who the organization is seeking (Davis et al., 2007). According to Davis et al., 2007, the explanation of elements of the matrix is the following: Experience: they are different experiences that the required candidate might have in team leadership, budget, and project management and so on in the last positions. Profile: they are the personality traits expressed in form of personal profile that are desired for the candidate, they usually are the creativity, energy, the ability to work under pressure and ambition. Qualification: it is the CV, it means, the academic or professional achievement, international experiences or language skills that are desired for the candidate. Elements above mentioned are easily defined and quantifiable, and also they are easily identified in the candidates just looking at their profiles or CV, but the three followings are more difficult to identify, because it can not be seen in a paper, the recruiter has to seek them through interviewing the candidates and observing their behaviour. Expertise: they are personal strengths, but this time not from a personal profile. They usually are ability to hand the change, flexibility, communication skills and so on, all of them are skills or traits of a leader. Potential: is the level of responsibility that the candidate must aspire and should be able to manage, to be a member of the talent pool, it has to be at least a senior executive level. Quantification: is the level that the company is seeking in the candidate on the capability to be success in operational terms. The matrix is not only a way to draw the ideal candidate through the definition of some parameters; it is also very useful for the management team to be aware of the current situation of the company and the potential that it has, but also to be aware of

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real needs that it has in terms of talented people to accomplish the goal. (Davis et al, 2007). Once key positions and thus the matrix are defined, the company has to start the search in the internal and external labour sources and compare the profile and the traits of the candidates with the matrix requirements. The enterprise will choose candidates who mach with necessities defined in the matrix. But that is only the first steep of the Talent Management process. When the company has the members of the talent pool it should start with the development of the talent of those employees. In the next part we will explain how this development is done (David et al., 2007). To summarize the recruitment issue we have seen that the most important aspect of the recruitment of the talent pool is that the company has to know which kind of talents

and skills it needs inside the organization before starting the selection process, and in our opinion, the use of internal or external recruitment depend of what the firm wants to achieve with that hire, if the managers want to start a radical change in the direction of the company or if they want to renew it, the best option is the external sources, but if

the organization priories are to obtain the best results with the current operational activities, the best option is the internal sources.

1.5. The Development of the Talent Pool

When the members of the talent pool have been selected the organization has to start with their development, to become them in perfect employees for that company. Taking into account that almost all the talent pool will be managers of that company in the future, a training to make sure that the future of the business is in the best is fundamental (Davis et al., 2007). According to Davis et al. (2007), the most of the desired talent matrix elements are present in talent pool members, but others will be obtained by formal or informal trained, even those talents which are inherent in the employee should be developed to increase them and achieve their maximum potential. The aim of this steep of the Talent Management Strategy is to transform the talented people in successful people. According to Davis et al (2007), the development is only the formal and the informal training of the talent pool but we believe that it does not only involves training, but also it involves the nurturing and the breeding of the talents, which, are not a real training, it is more about giving the right tool to the talented people to help them to develop themselves. Those tools are for example an open mind environment were the traffic of ideas is very fluent, and where the top managers are open to listen all the new ideas. Other tool is a stimulating workplace, it means of course physically, with hands,

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for example, different work environments, kind colours, clean air and natural light,

but

also it means a team work full of diversity, diversity of professions, age diversity, gender diversity and diversity of cultures, because it fosters the creation of new ideas. According to Stevens (2010), the variety or diversity of people in the organization is very

enriching, as well as the diverse team work is the best way to find the solution or new processes, and also it helps people to develop themselves and to became in the that they want, that means the satisfaction of the employee. The step of development of the talent pool, according to Davis et al. (2007), is the training of the talented people. It has a number of tasks which are the evaluation of competences, capabilities and potential of the talent pool, then, looking for the talent matrix deficiencies and develop a training programme to cover these deficiencies and also the evaluation of the result of the training. Talent Management Professionals should design a strategy to acquire the competences to generate superior results. According to Davis et al. (2007), there are two kind of development. Firstly, the knowledge development, it means, to equip the employee with professional and technical skills and corporate knowledge to do a specific role. The idea is to prepare the individual to the next role before to be promoted and take more responsibilities, and thus they can avoid the lost of confidence that this kind of promotions can provoke when the employee is not motivated. One type of this knowledge development, which is very usual, is when the firm pays the superior education of a talented employee; it can be an academic career or a specialized master programme. That kind of education is usually expensive, that is why the company has to ensure that the inversion on this employee is profitable, it means, it has to ensure that the employee has the capacity of learning fast and of applying the knowledge in a creative way. Moreover, the enterprise has to be sure that the employee is committed to the company and is willing to exploit the knowledge gained in improving business. According to Davis et al. (2007), the second kind of development is about personal skills, it means, the personal characteristics which the talented worker will need during all his or her career. They are leadership, insight, focus, dedication, integrity, communication, ambition and so on. However here is questioned the issue if this class of traits is inherent in a person or it can be developed with training. Our opinion is that everybody has some traits inherent in the personality or developed during the childhood, these traits can be developed and enhanced with training but only if they exist in the personality of a person, we that they can not be created from nothing. believe people

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According to Davis et al. (2007), the knowledge development and the development of personal skills can be done through formal or informal training. The formal training is the educational programs where all the time is dedicated to learn. The informal training is the coaching and mentoring arrangements, where the learning is done during the work time. There is a difference between coaching and mentoring, the first one, coaching is when an experienced manager of the department helps the talented employee, showing him or her how to do the work and mentoring is when a senior executive or experienced manager takes the role of trusted advisers who guide the talented employee transferring knowledge and also values, the mentor is the reference point to test the new ideas or assumptions of the talented employee. Although the two types of development can be made by the two types of training, normally, the knowledge development is done through formal training as courses or superior education and the development of personal skills is done through informal training because to develop this kind of skill is not useful a lesson or a course. The personal traits will rise from the relationship created between the mentor or the coach and the talented employee.

1.6. The Retention of the Talent Pool

According to Davis et al. (2007), the last and maybe the most important task or step of the talent management is the retention of the talented people inside the organization. We believe that these talented people are investments of the organization and also the key of its success; that is why the company should keep them in the organization. The retention should not be enforced through contracts or deals, it has to be voluntary, otherwise the

employee will be in the organization but he or she will not exploit all the potential in accomplishing the organizational goal. The talented people are very ambitious and they expect a high development of their career and they demand the help of the organization to achieve that development. Hence, they will stay in the firm only if the employer gives them every opportunity to develop their potential. So the retention is about motivation, commitment, career investment, career project and also rewarding, which does not mean only money (Davis et al, 2007). The career investment program of a company shows that it is ready to invest in its staff to help them to achieve their entire development and to acquire new skills and knowledge, if the staff sees that effort of the company, they will answer with a superior performance, it is like an implicit contract between organization and talented people. The corporate investment that the enterprise can do to attract and retain talented resources are the training, the recruitment process, the internal communication, HR

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infrastructures and in a talent management strategy. If a firm does this investment is because is a enterprise which takes care of their employees and it will become in a magnet for talented people who will want to work for that company (Davis et al, 2007). According to Davis et al (2007), building a corporate loyalty is a very effective way to retain the talent pool, but the loyalty in a long term is not related with high salaries and a good financial package, maybe it works in a short term but in a long term the talented people are looking for something more and also to maintain a program of very high salaries and extensive benefits is not possible for a long time. however when we say that the salary is not a tool for retain the talented people, we do not want to say that it is not important, the firm has to pay for the talented people because they are very valuable and all companies want to hire them, that is why the organization has to maintain the level of its salaries reflecting the general market conditions. The loyalty is achieved when the firm builds a brand soul, it means, the characteristic of the organization, the real essence, the vision, the passion and the culture, which includes values and the way of operating. This brand soul is shared for all members in the organization, creating a feeling of union, it means, they feel that they are the part of a whole and that they understand completely the company. Furthermore the brand soul can be a good tool to attract new talents, because the talented people want to work in a talented organization. The brand soul is an image or a picture of the essence of the company which shows the firm to the environment (Davis et al, 2007). We want to note that sometimes an employee will stay into the company just because is a specific firm, which has a good image or because it realizes a very interesting activity which can gives him or her a specific skill, knowledge or even reputation. When that happens, it is because the organization has built a powerful brand soul. This can help to the company to attract the most talented people without making a great investment in the recruitment, development and overall in the retention. The next tool to retain the talent pool is the promotion processes; they have to be open and transparent, because the promotion based on a personal relationship destroys the morale of their employees. However a promotion process based on meritocracy, it means when the promotion processes is based on employees achievements and on the potential that he or she shows, can increase the employees commitment and also his or her self confidence and motivation. The reason of this rise of the motivation and commitment is that they see that their effort is taken into account by the organization and it can be rewarded if they show a superior performance. Hence, a formal promotion panel or board can build the trust of the workforce. The career plans are also much related with the promotion processes and it can be also a great tool to retain the talent pool, but the key is to full the promises that the company does when

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the employee is hired to avoid the disillusionment of the employee. The career plans shows to the employee that this firm can give the development that he or she is looking for the talent (Davis et a.l, 2007). The most important tool or aspect for retaining the talent pool is the motivation. That is the key for the success in the talent management strategy because the level of effort that the employee will do is equal to the reward, which is not only money, so the motivation has to be sustained. The motivation can be achieved through all the actions mentioned above, but also through others as realistic objective setting, culture of continual learning, paying attention to the ideas that the employee presents and fostering the creativity. There are four factors which foster the motivation and we can order them in base on the importance that talented people give to them, they are the recognition, the opportunity, the job satisfaction and the last one is the money. Therefore we can say that the key motivator is the recognition, it shows the necessity of all people to gain a reputation and to feel valuable because it reaffirm to them what they are. The reason for the recognition will be situated in the first place is that if a talented person gets it, to achieve the rest of the motivation factors, they are opportunity, job satisfaction and money will be easier (Davis et al., 2007).

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2. TALENTED PEOPLE
Above we have explained about talent management from the company's management view, it means how the talent management treated talented people and now, we are going to consider talented people from the employees' view. It means that we would like to explain what talented people is for us, the talents that employees should have to be this kind of people and how they develop these talents during all their life and specifically in the working life.

2.1. Definition of Talented People

Before starting with the definition of talent people, we want to define what the talent is for us. According to Davis et al. (2007) talent is a special attitude, faculty or a high mental ability. Another definition that we would like to emphasize is according to Cheese, Thomas and Craig (2008, p.9) talent has become a precious resource fought over by competitors in a global war of talent. It means that as we will explain later all the organizations need talents in the individuals because they are key assets to obtain added value. As we can see also in a quotation of Drucker Central to his philosophy was the belief that highly skilled people are an organization's most valuable resource (Drucker & Maciariello, 2005). Now with the definition of talented people, we would like to stress the differences between talented and specialized people, because the limits between these two concepts are not clearly defined. We consider that specialized people are who have a vast knowledge about a precise activity or subject; they are professionals in their field, while talented people should have another personal features. They are a small group who has demonstrated superior achievements, has inspired others and who embodies the core competencies and values of the company (Berger & Dorothy, 2003). Moreover, talented people are always socially and emotionally competent. For example they can work efficiently and effectively in a team if we compare them with specialized people, the last ones sometimes can work well in a team group but not always, because talented people have a set of talents that specialized people usually do not have them. It is the same that as we have seen in class, a leader can or could always be an expert, but an expert always can not be a leader, it means that talented people can be always specialized people, but specialized people always can not be talented people. Thus, we think that an organization always needs talented people and we are going to argue this concept with a quotation of Bill Gates, take our twenty best people away from us and I can tell you that Microsoft would be an unimportant company (Berger, Dorothy, 2003, p.4), it means that a company consist of people, who have talents but they need a small group of people with more skills or talents to achieve the goals of the

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organization and without them the organization can not achieve them. Therefore, the firms should identify, select, develop and retain these talented people (Berger, Dorothy, 2003). To summarise talented people are a group of individuals, who has demonstrated superior achievements, has inspired others and who embodies the values of the organization (Berger & Dorothy, 2003) and who has personal features, which allow them to have socially and emotionally competence. Then, the company needs to know which the signs of the talents in the people are to find talented people.

2.2. Which are the Sings of the Talents?

Here, according to Davis et al. (2007), we will draft some features to find talents in the individuals, for this reason companies should look for them to obtain talented people. First, the capability in the role, it means that a person who has this ability can deliver his/her work or activity with superior results in any allocated role. This is the difference between talented and specialized people, because the last one can obtain good results but only in their role, while talented people can obtain superior outcomes in all the roles. Talented people sometimes use a structured approach to solve the problems that could appear in their roles. This approach consists of the nature value of the achievement, the identification of its key points, which sometimes can be organised in a performance matrix. Then, they determinate in a plan how to achieve the solution of problems and finally, they implement the plan. Second, the ability to handle change, it means that people with talents see the changes as opportunities and not as threats, which are moments to demonstrate their competencies and capabilities to embrace the changes and to improve the organization. They are able to overcome bad situations and learning valuable lessons, it means they can manage the failures (Davis et al., 2007). Third, the capacity for learning, talented people are able to learn new skills and to manage them constantly. These individuals are curious, because they are always looking for new ways to solve problems or doing things; it means that they are always expanding their knowledge. In addition, they can apply their knowledge to determinate problems quickly and also, they have the ability to absorb rapidly the new concepts (Davis et al., 2007). Finally, they have the personality of a leader. The leader is a person who has the power to influence in the people to do as he/she wants, and also he/she facilitates the success of all their activities and who plays many roles. According to Caroselli (2000),

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these roles can be visionary, problem-solver and reason ability, team-builder, manager, communicator, power distributor, liaison, planner and so forth. We believe that as a visionary, a leader has a clear idea of him/her objective for the future. As a problem-solver a leader must have a balance between creativity and knowledge. But a leader is nothing without good followers, so a very important role is to be team-builder, in this process the leader achieves that the team members are committed to working together, the way is sharing the vision, involving whole team and persuading the members to embrace it, letting them know what is expected of them. One very important issue is that into the team there are different personalities, and its combination can be very difficult, a leader has to understand the personalities of team members and he or she has to align the different task with different personalities making the best combinations. The best team is a diverse team, with creative and logical people, and where conflicts are a tool to find the solution. Of course a leader has to develop the manager task, but also manage himself to avoid the stress, we mean, avoid the mental, emotional and physical exhaustion. And also, a leader has to manage the followers emotions, it is the emotional intelligence, the skill is to transmit energy to motivate and create a feeling of unity within the firm. Finally, we consider that the formal and informal communication is one of the most important skills of a leader; a good communication talent allows the leader to make clear his or her vision, transferring energy to the staff to perform their work and motivate them, persuading people and capture their attention. The communication generates personal relationship in the workplace. All the opportunities, that the company gives to employees for training, developing, and much more, can deal employees to abuse these advantages to develop their own interests and not to contribute to follow the general interest of the enterprise, it means, the mission and purposes. Thus, the leader has to control his or her workers but without using authoritarian structures. This leadership style would undermine the work done to encourage for example the imagination and the motivation of the employees. According to Mintzberg (2009) the motivation and the commitment of employees are very significant aspects to contribute to the generation of ideas for the improvement of the firm, taking into account all the views of workers. The leader hence has to seek other ways to exercise control, such as obtaining that employees share the leaders vision. Alternative manner committed and motivated them so the leader obtains the loyalty of workers. It means that the leader should use all skills that characterize her or his position as communication, influence, motivation, charisma and so on, but in a new way that involve the management of talents.

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Summarising our ideas, we would like to stress that there are different ways of the manifestation of the talents and for us the most important are: the continuous accomplishment of superior results, the management of the external changes, the capacity of learning constantly and the personality skills. Then when companies can see these kinds of signs in people we could say that they are talented people.

2.3. Self Actualization

An important concept for our thesis is Maslows Pyramid of needs, which we have used as a source of psychology. It is a relevant concept for the talent management, because the potential development of individuals is a necessity to accomplish the self actualization. An organization with talent management strategy helps to their employees to cover that need, for this reason when a firm is planning its talent management strategy has to be aware of that necessity and also it can align employees interests with companys interest to create added value. It is a theory proposed by Abraham Maslow in his work: A Theory of Human Motivation (1943). Maslow formulated in his theory a hierarchy of human needs and he argues that as the most basic needs met (bottom of the pyramid), human needs and desires develop high (top of the pyramid) as we can see in the following figure.

Fig.2.: An interpretation of Maslow's hierarchy of needs (Maslow, 1970).

The main idea is that the higher needs occupy our attention only when they have satisfied the lower needs of the pyramid. It means that everyone is born with the perceived need to experience self-actualization, which is developed if the individual has satisfied the other needs of the pyramid, for this reason, individuals have the

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desire to develop their full potential, to become more and more what one is. For instance, one person may have the strong desire to become an ideal parent and in another it may be expressed in being the best in his/her job or being the best athlete. Therefore, according Maslow (1998) everyone needs to nurture and develop their talents to obtain the self-actualization such as learning, creativity, fairness, responsibility and justice, because they are in the persons nature. The arguments of this author are important because it raises issues as responsibility (esteem) and the necessity of personal development (self-actualization). Nevertheless at the same time we should take into consideration that there are differences between self-actualized person's needs and the personality traits. Nevertheless, inside talented people as we have considered before there are several categories. We think that all individuals have talents but there are some individuals who have more talents than others, for this reason the organization needs to know who the most talented people are to invest more in them than in the rest. It means that the companies should invest in the appropriate people the appropriate amount of resources, because this kind of practises to identify, select, develop and retain talented people are extremely expensive and they should spend more capital in the people who will give more added value to the company. In addition, these actions are very expensive actions in terms of time also; therefore the company has to ensure that the investment reverses through the high performance of its employees. To conclude, all humans are born with the need of self-actualization, this means that people have the desire to develop their full potential to become what they want in their life. Therefore, the desires to have talents and to become talented people are inside the person's nature. Nevertheless, companies are conscious of that not all people get the same performance because they have different kind of talents, that is why they need to know who the most valuable employees are to invest more capital in them without wasting the money.

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2.4. The Educational System

In this part of our research we want to emphasize the link between talent development and the education system. The traditional educational system, both at the school and at the university, was not focus on developing the full potential of people. This system was very focus on learning theories and concepts rather that developing skills as creativity, oratory, team working and learning by doing, it means that this system created specialized people more than talented people. We know that it is different in the diverse countries, but we are taking into account the traditional school some years ago in Spain for example. Nowadays, the society is aware of this lack of talents and this is reflected in the current educational system changes, one example of that is the Bolognas Plan. It is a deal between different Ministers of Education of Europe to create the European Higher Education Area, which tries to do a convergence process of University studies throughout Europe. For instance, from now all the University degrees will last four years in the whole Europe, for this reason, all bachelors will have the same value in the different countries of EU which will allows the free circulation of knowledge. Then, with these shifts, European Union tries to change the way to learn of the students giving them more freedom to think, more freedom to act, more freedom to communicate their imaginative and sometimes bold solutions of problems. Exploiting all the potential of the students and also, teaching and giving them excellent conditions to apply in their future jobs. Conditions such as flexible work, fluent verbal and non-verbal communication, team work, diversity in teams, practical work, oral examinations, more presentations and so forth. This means that the school and the University will offer from now plenty of development opportunities to its students to foster talents as creativity and imagination (www.queesbolonia.es). To summarise, the traditional educational system was fomenting specialized people but now the society is aware of the importance to be a talented people and for this, the actual educational system are trying to promote actions to foster the appearance of talents as creativity in the students and one of this initiatives can be the example of Bologna's Plan. Also, we have seen the importance of talented people for the company before, because they are the key assets and now we would like to consider inside the talents of these individuals, that for us one of the most relevant talents is the creativity.

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3. CREATIVITY
The specific topic that we will research in this part of our thesis is the nurturing of talents as creativity and imagination, exploiting all the potential that people have and they do not develop due to maybe conditions in the company are not suitable, employees do not want to do it or the leader does not know how to achieve it. Conditions such as fluent communication without bureaucracy, flexibility, casual business environment, team work, diversity in teams, dynamic atmosphere, delegation of decision power and so forth. This means that the organization offers plenty of development opportunities to its employees to develop and train their talents. The objective of all of these conditions, is to break with grids of acting and thinking that people develop throughout all their life in the society and to gain the imaginative and creative way of thinking of children and also the self confidence that characterize them, but relying on the knowledge of an adult. But now, let us start with the concept of creativity.

3.1. Definition of Creativity

According to Lumsdaine & Binks (2007) the word creativity has two origins, Latin and Greek. In Latin, creativity comes from creare to make and in Greek, creativity is derived from kreinein to fulfil. The first view means that creativity enables us to create something new, the development of new products or/and processes which will displace old versions. In the second view means that creativity allows the use of our imagination to create new horizons of what we do and what we believe about our full potential, the fulfilling of our individual bases. Another definition that we want to take into account is according to Nilsson (2010) that the creativity is the ability to use the imagination to transcend traditional ideas, rules, patterns, relationships, or the like, and to create meaningful new ideas, forms and methods. In the talent management activities to treat key employees as extraordinary innovators is fundamental giving them tools to develop their creativity. In the search of talented people, leaders have to look for entrepreneurial minds. It means that talented individuals should have entrepreneurial minds, but not in the sense of creating a new business, but in the sense that the entrepreneurs are creators, empathizers, pattern recognizers and meaning makers (Nilsson, 2010). Then, if companies need people with talents as creativity, they should know the sources of the creativity to implement them in their employees.

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3.2. Creativity Sources

Formerly, it was believed that creativity could come from sources such as the divine inspiration, serendipity, contrived luck or determinism, but nowadays we will use that the creativity comes from the learning processes. Anyway, according to Lumsdaine & Binks (2007), we are going to explain traditional and new sources of creativity in the following lines. First, the divine inspiration view means that the creativity is derived from God or higher-order thinking. Second, the serendipity view means that the creativity is the accidental outcome of a fortuitous coincidence of thoughts and events. Third, the contrived luck view means that the creativity is a natural result from greater conditions. Forth, the determinism view means that the creativity is forced via determinism to solve a particular problem, so creativity has to occur. Finally, the learning processes are the view that we will utilize as the source of creativity. It means that the high levels of creativity come from the application of some processes, which influence in our way of thinking and behaving. Thus, they teach us to be more creative.

3.3. The Relationship between Creativity and Innovation

According to Lumsdaine & Martin (2007) the Herrmann Dominance Instrument has four specialized thinking clusters in the brain. One of them (the upper right) is related with the creative thinking capabilities such as visual skills, big pictures, taking risks, being spontaneous and much more (www.athenaonline.com). The creator, Herrmann saw that the creativity is a dynamic activity that involves conscious and subconscious mental processing in generating and idea and making something happens as a result; but the creativity does not occur in isolation, it needs the person's mind, ideas and inventions. Moreover, we usually use the creativity for solving problems in different ways, but also it is necessary for the innovation. The organizations sometimes utilize the words creativity and innovation with the same meaning. Nevertheless, there are some differences between these two concepts. We know already what creativity is and now we will explain the concept of innovation that is the practical application of the creativity in an organization, which usually requires a team. To allow the innovation, the good communication of ideas in all the directions is necessary and crucial inside the companies. Another difference between these concepts is that creativity is usually in the beginning of the process to create something and the innovation happens much later. Innovation is much safe because it is when the product or process is established. Managers often prefer to use the word innovation instead of creativity,

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because sometimes creativity has some negative connotations such as the possibility of failing (Lumsdaine & Binks, 2007). To conclude the creativity and the innovation do not have the same meaning. The creativity enables us to make something new and the innovation is the practical way of the creativity, it means that the innovation is the next step of the creativity.

3.4. Skills of Creative People

They are curious, because they are always inventing new ways of doing things or solving problems or improving existing products or services. For this, they need to be updated, observing new and traditional trends, comparing them and looking for all the opportunities that they can find in the environment. They are people who have realized that to be successful in a project, firstly they should be passionate in their work, they should take risks so they do not have to be afraid of making mistakes and also, they have to improve it with small and continuous steps. They use the creative thinking to solve conflicts and also they know the importance to acquire and to have this kind of skills to success in the rapidly changing and innovative world in these times (Lumsdaine & Binks, 2007). Here we can think that is easy to be a creative person but sometimes there are some barriers to the creativity.

3.5. Barriers to Creativity

All humans know that we are born with the talent of the creativity, but when we are in the school or at home or in our daily live we usually establish some barriers to our creativity. According to Lumsdaine & Binks (2007), we will explain three types of barriers to this talent: false assumptions, learned habits and emotions. First, we consider false assumptions: the belief that the normal behaviour is that people are not creative and the attitude of playing for children is frivolous. The first is not true, because it is demonstrated that all humans have a huge potential to be creative, but we do not know and we do not use it. The second assumption is false also and it is imposed in the business sector, in the schools and also between the parents. The play is a very significant aspect for our cognitive development, then, children have to play in their lives. Between the business world, we have seen in some European Initiatives such us Creativity, Innovation, People. A selection of European good practices and in the Manifesto of European Ambassadors for Creativity and Innovation (2009) that the organizations are trying to promote the learning through creativity. To get this, organizations are investing in new ways of learning processes

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for their employees, because all the people have the right to use their creativity talent. These initiatives consider that creativity and innovation can move organizations forward toward prosperity, but organizations need to take responsibility for how they are used. Today, they must be mobilised in favour of a fair society with respect for nature and for the health and well-being of people worldwide. Then, to create a more creative and innovative Europe, they present these initiatives, which set out their priorities and their recommendations to find a way out of the current stalemate in this period of crisis (ec.europa.eu). In addition, we saw in this document that the diversity is an important concept that has to be applied in the organizations, due to the sharing of knowledge between groups

of different cultures flourishes the creativity, because they contain different understandings of the same concept. Second, the learned habits are other barriers to the creativity. When we are doing a test we usually think that there is only one right answer, but it depends on the formulation of the question or the criteria to respond the question, it means that can be more correct solutions. For this reason we should look for alternatives to compare with which we think is the right answer to know which the best is. For example, when children do not know how they can do something they are always trying to invent new ways of doing, but adults insist that the kids have to learn the same way of doing things that all of the society. Another habit is when we look at a problem in isolation. Before trying to find answers for a problem, we should take into account if this problem forms part of a larger problem, in this case we can not consider the problem alone, and it means that the context is important. Thus, talented people should have a wide point of view because if not it will be a barrier to creative thinking, becoming specialized people or experts instead of people with talents. The last habit that we consider a barrier to the creativity is when we follow the rules. Are always the rules really necessary or helpful? We believe that the rules are necessary in the company to control the employees, the results and so on, nevertheless they do not have to impede the creative thinking, and then rules are necessary when they have a right purpose to exist. These kinds of habit barriers can be solved if we consider the different ways to solve the problem, if we look for them in a huge context and if we analyse the purpose of the rules (Lumsdaine & Binks, 2007). Finally, the third barriers to the creativity can be the emotions. We are going to speak about two types of emotions or attitudes: negative thinking and risk-avoidance. The negative thinking is based on paying our attention only in the bad personal skills rather in good features. The risk-avoidance means that all people have the fear of failure, which impedes the creative thinking. To break with these emotional barriers, companies should encourage their employees with positive feedbacks when they give

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creative ideas and also, employees should know that the failure is another step to learn and to improve every day and to obtain a future success (Lumsdaine & Binks, 2007). To summarize, there are some barriers to creativity from people in the school, parents till in the business sector. These barriers are the feeling that people are not creative, the belief that there is only one right answer to solve the conflicts, to analyze the problems isolated and the negative thinking and risk-avoidance between much more. Then, companies have to overcome this kind of barriers to foster the creativity of their employees because they need it due to they are talented people.

3.6. Leadership Style to Foment the Creativity

According Woods (2005), the democratic leadership is one style of leadership where

creativity and imagination of employees are encouraged. This leadership style is one of the most important key concepts related with talent management to know how leaders deal with key workers, it means with talented people, because here the communication in all the directions is very important , which allows the improvement of the company, their products or services, their processes and also of the development of employees. Nevertheless, a leader has to manage his or her employees, that is why he or she should retain these creative and dynamics minds, for this reason one of our questions is how they do that, to answer this we have deepen later in the cases of Google and Zerogrey. These organizations stimulate the breeding and the nurturing of creativity. On the one hand, we have studied the case of Google looking

for the information by Internet in the several investigations or documents written about this company, several academic articles and some thesis. On the other hand, we have studied the case of Zerogrey, which is becoming bigger and bigger. In this part of our investigation we have included our empirical studies that we have obtained of Zerogrey, because we visited its headquarter in Dublin (Ireland) and we did some interviews with the CEO of the firm and also with three employees as we will show now.

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4. EMPIRICAL FINDINGS AND ANALYSIS

Our empirical finding and analysis are about two companies, which are Zerogrey and Google. They are very different organizations but both are related with our thesis of breeding and nurturing talents. They are different because Zerogrey is a small

company with 20 employees, while Google is a huge company with more than 10.000 employees worldwide (www.google.com/corporate/execs.html). Nevertheless they are similar because both, Google and Zerogrey base their operational activities on the innovation and the development of new technologies that is why, they depend completely of the performance of the workforce. They are developing a talent management strategy, each one in a different scale according with the size of the business; however both companies apply that strategy to contract the best individuals, and this means talented people. They are constantly recruiting, training, developing and retaining that kind of people, who are dynamics, youth, hard working, curious, passionate in their work and much more. Our aim is to demonstrate that to have a good talent management strategy has nothing to do with the size of the company and that each organization can develop it according with their necessities. Our empirical work is based on primary and secondary sources. In Zerogrey, we did some interviews with three employees and the CEO of the company and in Google we obtained the information by Internet and academic articles. It means that we have used primary

sources in the case of Zerogrey such as interviews and dialogues and we have utilized secondary sources such as academic articles, web pages, thesis and of Google and also, in the case of Zerogrey. books in the case

4.1. Empirical Study: ZEROGREY

4.1.1. Description of Zerogrey
The company Zerogrey is a young company dedicated to perform the e-commerce of their customers. They build and run online stores for corporations all over the world. Zerogrey offers to firms the whole set of technologies and services needed to carry out Ecommerce and indeed carries out E-commerce in their place: servers, systems, warehouses, payments, returns, frauds, legal, contact center, promotion, and so forth. They have branches in Italy, Spain, Ireland and the United States of America. Zerogrey is a partner for a large number of organizations operating internationally in different markets. Their approach brings services and technology together to solve all problems that the set up of the online channel could create. We will explain the main activities of Zerogrey, its situation of the Dublin's office and finally, the relationship between Zerogrey and both the talent management and

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talented people. Let us start with the four pillars of Zerogrey to explain its main activities, which are E-Commerce Technologies, Data Analysis, E-selling operations their Logistics. 1) E-Commerce technologies Zerogrey develops its own E-commerce engine to maximise online sales on stores of companies. Their complete E-commerce platform is built by a team of international software developers managed by their head engineers. Zerogrey technology is international and draws on the experience gained during years of E-commerce activity in complex markets such as Europe and the USA. Cultural and operational aspects such as different currencies, multi-lingual descriptions, localization of contents and of partners are crucial for the international success of an E-store. Their experience with companies working in many product and service sectors and on projects of small to large dimensions pushed their developers to design a flexible system able to host and retail products and services with and without options, to ship from many warehouse, to channel sales into selected markets at specific sales conditions and so on. The most important of the E-store with Zerogrey will be based on their proprietary technology. The organization that hires this serve, speaks directly with whom created the technology and daily develops it, it guaranties a fast and effective future flexibility if the online market changes. 2) Data analysis The direct E-commerce on the final consumer is a source of data on preferences, habits, and characteristics of the typical client of the brand or of the product. It produces a data-set in constant evolution useful for many types of segmentation and analysis. Zerogrey has to manage the dates such as the history of orders and the demand expansion path, which are property of the costumers and which can be observe directly by the clients in real time in every moment. Moreover, they are responsible for the reporting for the Sales Manager or the Marketing Department of the organizations. Zerogrey offers specific instruments to control the outcomes of the E-commerce activity and to analyse them. For example: Number of visits, average duration of sessions, number of fulfilled orders, chosen payment methods and much more. 3) E-selling: operations and

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Zerogrey provides commercial and technical services towards the activation of Ecommerce projects selling to costumers and to partners. After the assessment the objectives of the enterprise which hires the E-commerce, Zerogrey takes care of all technological aspects connected to the online store. Depending on the companys goals, Zerogrey can do all E-commerce operations or just a part of them. Zerogrey will do everything that direction of the organization does not want to do, who chooses all strategic aspects. 4) Logistics The logistic is the last important pillar for Zerogrey to guarantee its successful. Normally, consumers' expectations are much higher than those of professional customers that is why the companies need to check constantly their online operations if they want their success durable in time. Sometimes, most customers by Internet buy as they follow an immediate impulse and immediately they want to be informed on their order fulfilment status. The delivery and the information must flow fast, while their store service must be transparent as far as possible, it means that Zerogrey takes care of their users.

4.1.2. The Location: The Digital Depot

The headquarter of Zerogrey, which we have visited, is in the South of Dublin city. It is located in The Digital Depot, in the hearth of Digital Hub, which is an international centre of excellence for digital media firms, research and learning. It was developed as a joint initiative of Dublin City Council, Enterprise Ireland and The Digital Hub

Development Agency. They have adapted the building of a factory of 1950 to make this centre, where they maintain the original exterior, together with some of the original internal features. This was a huge investment made to create an innovative and high specification environment for digital firms in Ireland (www.digitaldepot.ie).

Pic.1: View of the adapted building of The Digital Depot (www.digitaldepot.ie).

The Digital Depot brand is increasingly recognized beyond Ireland, due to the accomplishments of the digital content and technology companies doing business from

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there and also it is allowing their fast growing. These enterprises are part of a network of approximately 100 and their core areas are: entertainment, education, corporate and public service sectors inside this industry. The profile of these firms is small and like-minded digital media enterprises and some examples of them are Amazon, Ballywire Media Ltd, Cambridge Animation Systems and Zerogrey, to name a few. The Digital Hub allows them the shared utilization of some facilities for all the companies located there and when these firms grow, they do not have to move out. Some of these facilities are: a modern ICT infrastructure, parking, mail boxes, meeting rooms, cafeteria, networking events, fully-furnished office space and much more, as we can see in the following pictures (www.property.ie):

Pic.2: One of the meeting room shared (www.property.ie).

Pic.3: Cafeteria and corridor of Digital Depot (www.property.ie).

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It means that The Digital Depot contributes to firms with support services that they need when they want to start their business, which promotes the birth of entrepreneurship, from the point of view of running their own business till the birth of entrepreneurial, innovative and forward-thinking minds in the employees of these enterprises. We have also several examples in Spain of this kind of centre to stimulate this environment in determinate regions of our country, but in this case when firms they have to move out (descargas.cervantesvirtual.com). Our opinion of this centre is that they encourage spaces to meet the demands of the digital sector, with flexible arrangements for the companies, shared facilities as we have mentioned above including a fully fitted presentation room, a cafeteria providing a central social area within the building where people from companies can meet informally and exchange ideas. We used a meeting room but also we did two interviews in the cafeteria, which allows us to observe the environment, which was casual, informal, high-tech and youth working environment. And also the firms of The Digital Hub are participating in a CEO forum and leadsgeneration network, and gaining access to business advice clinics, industry events and a directory of preferred suppliers and they can get some discounts because they are part of this centre (www.digitaldepot.ie). grow

4.1.3. The Analysis of Zerogreys Talent Management Strategy

We have done observations in its headquarter in Dublin and we have maintained informal dialogues with employees who work there, we also interviewed the CEO of the company, Guido Meak. The objective of this empirical analysis is to discover how a small and innovative company uses the talent management to improve its performance. It means how managers of the company recruit, develop and retain the talented people who are in the organization. Taking into account that Zerogrey is a small firm, which is formed by twenty employees approximately; it does not have a formal Talent Management Strategy, also they do not have a Human Resource Department but they develop the talent management activities in small-scale, obtaining successful results. Below we will relate the findings obtained during the observations, dialogues and interviews with employees of Zerogrey. During the dialogues we were focus on to know how employees feel working in that organization, and also we were focus on which is

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their vision about the management style. During the interview with Guido Meak we were focus on what he understands about Talent Management and what activities Zerogrey is doing in this field taking into account the necessities and the size of the company. Firstly, we were talking about our own first impressions when we went to visit the office of the company. Secondly, we will explain the management style that they have in the company and how they accomplish higher performance of their employees. That explanation is based on the employee performance formula (P= (A, M, O)) that we saw in the model of Collings & Mellahi (2009). Finally, in the next section, we will describe the talented people that we identify inside the company. First of all, we would like to note that when we were speaking with the CEO of Zerogrey about what he understands about the concept of talent management he said to us that he had never heard about that concept, nevertheless when we ask him about how he develops the three elements (recruitment, development and retention), he let us to know that in Zerogrey has a very good talent management strategy, due to the organization is aware of the necessity of talented people to develop its operational activities, and also its values its employees and motivate them to achieve their maximum potential development, and that is the essence of the Talent Management. As we have seen before the Zerogrey headquarter of Dublin is located in the Digital Depot building. The office is only one room where five employees work together; it means that they work in the same space. The five employees are from different nationalities, they are from U.S.A, Poland, Germany, France and Ireland, different cultures and different fields of specialization that is why there is a high degree of diversification into the organization. They all are very young, and the environment that we observe was familiar, for example they do not wear formal clothes, and they maintain an informal relationship. We think that this kind of environment fosters the creativity and innovation through the easy exchange of ideas. The management style of Zerogrey is very flexible and democratic. This means that the managers give to the employees the freedom to do the task in the way that the employee chooses. The performance is measured by the result, not by the process. An employee, who is in charge of programming tasks and who develops the software to operate the business on the Internet, said to us that he feels free to realize the work in his way, improving it as much as he wants and introducing his ideas in the task. That kind of flexibility leads to a higher performance of the employee and a higher quality of the task. This flexibility is not total, for example, they have a work schedule that they have to fulfil in the office. Nevertheless, employees see that schedule as a good point to separate their work life and their personal life, an employee who is in charge of the logistic, order management and customer services said to us that he would not like to

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work at home because he prefers having that time to spend with his family or his friends and to relax. One of the most original points that we saw in the management style of Zerogrey is about the control of the manager to employees, it is original because it almost does not exist in a direct way. Zerogrey managers are not all the time in the Dublin headquarter, due to they have another principal office in Turin and they have to travel very often to visit their customers. Guido Meak, the CEO of Zerogrey, told us that he does not do almost any control because each employee knows what he or she has to do. He told to us that he does not want to be like a jail guard. According to all Zerogrey employees, they do not see their supervisors more than 3 or 4 times during all the year. That is why employees has the freedom that we mentioned earlier, but also it means that they assume the responsibility to do the work without direct supervision, hence the capacity of assume their own responsibility is a personal trait that Zerogrey is looking for in their employees. Due to the managers are not in the office during most of the time, the communication is a very important issue in the organization. In Zerogrey the communication is mainly through email and Skype and they do not establish periodic formal meetings but the communication is open and in all directions. That is another of the most original points of the management style of this company. The Skype programme gives to organizational members the facility to have direct communication at any time without any cost. Employees may ask or communicate a new idea to their supervisor, who usually is not in the office, at any time without the need of a formal meeting. Hence we can say that Zerogrey use new technologies to have a high level of communication in all directions without the need of a great investment of capital and of time. That has the advantage to facilitate the processes of decision, to promote the exchange of ideas, which leads to better results in the organization. Furthermore this style of communication has advantages related with the workforce, it increases the motivation of employees, who feel heard and valued and also it promotes their learning through the exchange of knowledge. Nevertheless some employees felt a bit strange in the beginning when they had to speak by Skype with people that they did not know personally and the efficiency of the communication improves when they met personally, we think that this is due to the lack of confidence that exist when the partners have never spoken face to face. Regarding to the communication between members of the office of Dublin, we observed that the informal atmosphere and the fact that they all work in the same space or room facilitate the rapid communication. During the development of a project each member has a job related to their specialty but all tasks are related, therefore to

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know how is going the work of others is essential to integrate all the tasks and achieve a successful outcome. Now we will explain how Zerogrey develops the three main activities of the talent management, the recruitment, the development and the retention of the talent people: 4.1.3.1. The Recruitment Activities of Zerogrey During the interview to the CEO of the company, we spoke about how the recruitment is done in the company, Guido Meak said to us that they do not have a formal process of selection because they hire 2 or 3 people per year, that is why they do not need to invest in the development of a formal process, he notes that the most important issue when they are looking for a new employee is to define before what Zerogrey needs, hence, managers design the profile of the person who will fulfil the job, and also they define the talents or skills that they need to achieve a higher performance in that position. After the definition of the Zerogrey necessities, they start to look for people directly publishing the job offer on internet, mainly in their web site, they do not outsource this task because two reasons, the first one is that they do not want to spend capital on this and the second one is that they prefer making the decision directly due to they know if the candidate will fit in the corporate culture and in the work style. Zerogrey seeks business people, marketing people, programmers and public relations people, because those are the areas where they work, but that profile is only for the specialized knowledge. The company pays more attention to look for talent as skills as facility in mathematics, languages, people who can maintain a good relationship with the customers and also personal skills to work in a team and to assume responsibilities, they are looking for developers and creative people to survive in the environment of constant change which is the business in the Internet market. The employee responsible of the programming task told us that Internet is like a baby, there are too many ways to do business that are yet to be explored, that is why companies that work in the sector should have a developer workforce to explore that ways before the competition. Due to the enterprise is small, employees are considered members of the talent pool, that is why in their recruitment, Zerogrey managers look for talented people when they hire workers, they specially look for the diversity and young people who have the energy and fresh ideas to accomplish a higher performance. Nevertheless also the diversity is determined by future projects that the company has to develop. Zerogrey, although is a small company, has a truly international client base, therefore, the company seeks employees of nationality where they will develop their next projects,

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because these people, not only know the language, they also know the culture and characteristics of that market. This behaviour is an example of the talent management activities of Zerogrey. As we have seen before, the first task of an organization to create the talent pool is to define the key positions and the talent needs to fulfil those before starting the recruitment process. The recruitment process is through a small technical test, to ensure that candidates have the necessary knowledge and personal interviews with the CEO, Guido Meak. These

interviews are the most important part of the process because, as we have seen before in Zerogrey mainly they look for defined personal traits which only can be detected by a

personal contact, not in a test. One employee spoke whit us about his recruitment process, he said that it was overall a personal interview with Mr. Meak, interview they had an informal dialogue to see if the personality of the would fit in the company and if he had the searched traits. The reason during the employee because the

organization has this structure in its recruitment process is that they are looking for talented people and not for specialised people. 4.1.3.2. The Development Activities of Zerogrey The second main activity of the Talent Management, as we mention above, is the development of the talent pool. It means how Zerogrey managers develop the talent and the capabilities of its employees to exploit their full potential. In Zerogrey we observed two kinds of development, the formal and the informal development. The first one is a formal training that employees have when they start to work in the organization. This training is to learn how the company works. According to Guido Meak in Zerogrey employees can foster their skills or knowledge doing development courses; it means formal development, such as language courses, program courses and also courses to recycle the knowledge. That kind of recycle courses are essential in the field where Zerogrey works. The CEO says to us that they, the company, put the money and the time for those courses because they know that their workforce is the most important sustainable competitive advantage, that is why they have to develop their talents to avoid that employees become obsolete. Nevertheless according to Guido Meak they do not have a formal structure for the development activities of talent management; he says that employees do those courses when they need it. The second kind of the development of the talent pool is more interesting for employees. It is an informal training which is developed during all the time that they are working in the organization. This informal training helps the employee to develop new skills and it is developed through two ways. Firstly, the fact that the workers have the freedom to do the tasks provides a kind of auto development because they do not

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have a close task; they have a task that needs to think and to discover a new ways to develop it. The second way is a kind of mentoring, but the mentor is not an experienced manager who teaches the new employee. In this case, mentors are all employees, because they exchange knowledge between them all the time and thus they develop new skills and talents. The diversity of the workforce provides them of a lot of different abilities which are shared by the team work and the communication system that they have in the company. This kind of informal training becomes the company in a learning organization where the knowledge flows and is exchanged through all the company. 4.1.3.3. The Retention Activities of Zerogrey Finally, the last main activity of the Talent Management is the retention of the talented people into the firm. The retaining is accomplished by the motivation of the workers and by the brand soul that Zerogrey has built. During the interview with Mr. Meak he said to us that the main factor for the loyalty and for the motivation of their employees are the happiness, he said that they are trying always to keep their employees happy because is the only way to retain them, but the happiness is accomplished through many actions which we could see in the Dublin office such as the familiar workspace, the opportunity to grow with the company, the security and the recognition of their work. As we could see in the Dublin office, the motivation is based on the work environment, for example, in Zerogrey the employees maintain a good relationship doing team building activities as a cake break every Friday, when they talk about how their work is going in an informal way and also they do some activities outside of the work time such as dinners or going out to watch some shows. All these activities are financed by the company. Another factor of the motivation, as employees said to us, is the security; it means the economic security that is provided by having a job, overall in the current downturn. Nevertheless, in Zerogrey, an important part of the workforce is people who are doing internships. That people do not have any economical reward. That is why; the money is not the main motivational factor for them, there are other factors as the experience provided, the skills acquired and the opportunity to do the work that they like. An employee said to us that the main motivational factor for him is that he loves what he is doing, and Zerogrey gives to him that opportunity. However, factors as money, good environment and the opportunity to do the work that they like can be accomplished by other companies in the competition, that is why, Zerogrey has to offer something more to retain their inversion in the talented people. This something more is the brand soul, which according to Davis et al. (2007), is the characteristic of the organization, the real essence, the vision, the passion and the

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culture, which includes the values and the way of operating. Employees interviewed feel that they are working for a great company, which does something very interesting and innovative, and they want to be part of this. One relevant feature of this brand soul is that the company is a young organization which is in a growth process, and workers can see how the firm becomes in an important enterprise from just an idea through their work. 4.1.3.4. The Conclusion of the Talent Management of Zerogrey To conclude the explanation of the Talent Management activities of Zerogrey we will explain how the performance of the employee is achieve base on the formula developed by Collings & Mellahi (2009) in their model, according to them the employee performance depends on the Ability, the Motivation and the Opportunity, (P=(A, M, O)). In Zerogrey the Ability to do the work, it means the knowledge and the talent, is searched during the interviews and it is developed through the formal and informal training, which provides the workforce of specific skills that can not be developed in other company. The Motivation to exploit in the company all the potential is accomplished by the diversity, the team activities, the good and informal work environment, the fact that employees like the work that they make and also by the brand soul, which is unique, and it makes the workforce loyal. The Opportunity of develop themselves is given to employees through the freedom to work, and the freedom to think due to the working way is very flexible. Zerogrey provides to the employee the opportunity of applying his or her ideas in the task.

4.1.4. The Talented People and the Creativity in Zerogrey

We consider that Zerogrey individuals are talented people, because when we were there, we could see some of the signs of talents that we have mentioned in our theoretical framework. We could observe that they are talented people, but sometimes they are also specialized people. Nevertheless, as we have seen before, there are some differences between specialized and talented people and we have realized of that in a practical way. They are specialized people because they have a vast knowledge in their determinate field. For instance, we were speaking with the responsible for marketing, programming, order management and customer services and we could see their large knowledge but also, that they are talented people because they have personal features necessary for the enterprise. Nevertheless, with this we do not mean that all talented employees of Zerogrey are specialized people. If we consider one of the definitions of talented people that we have used in our framework according to Berger & Dorothy (2003) we will explain the three dimensions of this definition in Zerogrey employees. First, they want to do their work in the best way every time and also, they are able to inspire to people in internships and finally, they embody Zerogrey values, for example

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one of their traditions is the cake break on Fridays as we have mentioned above. If we consider the signs of the talents we could explain that they are often looking for superior results in their roles. Moreover, they have the capacity of learning, a determinate personality and they can manage the changes. We were speaking with Guido Meak the CEO of Zerogrey and he told us that in the actual crisis there are a lot of companies which are dying but Zerogrey is living really good , because they consider the crisis as changes and opportunities to improve the company. And also, they have the ability for the development of a good communication, they are curious and they are responsible in their work, because they do not need that their boss is behind them all the time. In fact they told us that they can see the Zerogrey CEO three or four times in the year and in the Dublin's office there were no managers in this moment, it means that they have freedom to act and to work. And also, they are rapidly workers, for example the developer programmer had to do a project in three days and he made it in two hours. In general, the main talents that we note in them are languages, the way of treating different clients, maths, and computer knowledge and personality skills as we have mentioned before. We would like to explain some talents in every employee that we consider relevant for the successful of this company, but before we are going to explain the Zerogrey's roots explained by the CEO of the firm, Guido Meak who is one of the four founders. The company started in Barcelona in 1999, like a multi brand shop, because they wanted to run a business with the same idea of E-bay. Nevertheless, in 2000 they found a shared necessity for all the brands with which they were working, that is why they refound Zerogrey in Italy but with the common idea of running online shops. Slowly, they commenced to do deals with some corporations and in a few years they started to build the online stores for them. But they were thinking that they should offer something to allow them to differentiate from the competitors and they chose their software that was built by a team of international software developers managed by their head engineers, it means the software was developed by talented people. Now, we will explain some of the talents of the Zerogrey's employees that we consider relevant. We had a dialogue with the responsible for order management and customer services, Michael. He was teacher during six years before. And as we could observe he is organized and formal. Talented people sometimes use a structured approach to solve the problems that could appear in their roles and one example of that is Michael. He knows the achievement that he has to do, he looks for problems to solve and then, he determinates in a plan how to achieve the solution of these problems and finally, he implements the plan. Nevertheless, he is a person who considers the motivation a key factor for the successful in the company and for the welfare employee. He said to us that as a

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teacher, he had to try to be the best teacher, to motivate their students to encourage that they give their best and that they were looking for a promising future. In conclusion, they need to know the satisfaction to learn. And he considers that he has to motivate employees to develop their talents now in Zerogrey like he had to do as a teacher. In addition, we were speaking with the developer programmer, Darek. He is the responsible to manage defaults, integration tools, systems, warehouses, payments, returns and so forth. He is in the company more or less from the beginning, for this reason here we can see his loyalty maybe because he is motivated. In his personal skills we could observe that he is curious, imaginative and creative. He is always trying to look for new ways of doing things in his projects and also he makes movies, pictures in his free time and he has his own web site. He is the typical person who is learning by doing, for instance he told us that he learned English speaking with people and with the integration into the culture of Ireland, not joining with people from his origin country, Poland. And also, he considered that people need to have passion for their job, they should love what they are doing to try to learn from it every time, to improve it and to do it with the best result. He considers that in Zerogrey, they are looking for people with personal capabilities, it means for great people as he said. He did not have to pass huge technical examinations to be hired in this enterprise. This means that in Zerogrey they consider people as individuals with talents who are key assets of their firm; they do not consider people as a machine or a piece of furniture in the company. We consider that he was an informal person and with the most social competence in this office. Finally, other of our informal dialogues was with the responsible of marketing, Robert. He works with the email marketing, affiliation marketing, advertisements, conferences, sales in the shops, graphics and so on. We could observe that he was the shiest person in this office, but he was speaking with us about that the team work is very important for him, which could be a paradox. He can work together with their colleagues, which is very enriching and also if he needs help they can give it, because all people have time for their partners, with this we can see the loyalty between colleagues. Nevertheless he said to us, that in the beginning it was unusual to speak a lot of time by Skype, but overall because he was speaking with unknown people for him and it was improving when he met these people. Despite all of this, he told us that in Zerogrey we will see a really large communication thanks to the network Skype and that he is completely free to communicate his new ideas in every moment. If we take into account the three dialogues with the employees and the interview with Guido the CEO, they told us that the team work is a fundamental tool in Zerogrey, which is characterized by the positive attitude and the diversity. They are working in a

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small room with five tables, where we could see the good, young, casual and high-tech working environment that characterized The Digital Depot, where they are.

4.2. Empirical Study: GOOGLE

4.2.1. Description of Google
Google is a company which organizes the worlds information and makes it universally accessible and useful. The Google founders are Larry Page and Sergey Brin. They designed a new way of doing online searches that was born at the residence of students from Stanford University and quickly spread to information seekers all over the world. Google is now noticed as the most important search engine in the world, easy to use and free service. People can find information in many languages, check stock quotes, view maps, searching millions of images and so forth. They also offer ways to access all this information without having to go to Google homepage. The Google Toolbar lets people perform a Google search from anywhere on the web. And for those times when individuals are away from their computer, Google can be used from various wireless platforms and from mobile phones also

(static.googleusercontent.com). Google has become one of the best known brands in the world almost entirely through the free publicity that make them satisfied with the users. If we consider Google as a business, the company generates revenue by offering advertisers the ability to advertise online, in a measurable and affordable, with ads relevant to the information presented on a given page. In this way, the ads are useful and effective for the user to the advertiser. They believe that when someone has paid to put a message in front of you should know, as differentiate ads from search results or other content of a page. They do not sell the positions of the search results (static.googleusercontent.com).

"Ggol" ("googol" in English) is a mathematical term used to refer to a 1 followed by 100 zeros. The pun Google does with its name reflects the firm's mission to organize the huge amount of information available on the web (static.googleusercontent.com).

4.2.2. Google: The Talent Management Excellence

Today Google is a huge enterprise, it shares some features with other big and successful companies, but it is not an usual company. Google is growing but it retains the small company feel in the workspace, it makes Google unique, because its Talent Management Strategy is which defines the way of its work. It means that Google pays attention to the workforce and to what they want to say with an environment of trust,

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because the Google founders and managers know that the Googlers, which is the nick name that their employees have, are the engine of the company. Hence, Google is and example of the excellence in Talent Management Strategy and it has a HR department which is a very important part of the company, this department is managed by Laszlo Bock, and it is responsible for attracting, recruiting, developing and retaining Googlers. There are more than 10.000 employees who are leaded by professionals with the best experience (www.google.com/jobs/lifeatgoogle). Google aligns its Talent Management Strategy with its culture, mission and vision, it means that Google HR professionals recruit and hire only people able to accomplish the mission following the Google culture (Prosser, 2008). In all its offices around the world they hire people who are committed with creating the perfect search, which is the vision of Google ( www.google.com ). As we have seen before in the explanation of the concept of Talent Management, the convergence of the corporate culture and strategy with the Talent Management strategy is the key of the success for a company which has as a main resource its workforce. According to Brooks & Saltzman (2009), the Talent Management has to be reflected in the corporate strategy, it has to be linked to the core business, and that is exactly what Google does, the authors said that this is the reason because Google is immune to the downturn. We can say that the Google activities depend completely of its Googlers and not of any tangible resource. We believe that in Google, the concept of talent management is global; it means that they consider that all their employees are talented people, and all of them are the subject of Talent Management activities, they say that Google is a good company

everywhere you look (www.google.com), so the managers believe that the talent is in everywhere. We believe that the reason of this conception of the Talent Management concept is because the Google operational activities are really complex, there is not a routine at all on those, they are based on new ideas and innovative projects. They can only be done by talented people. Google wants to be boldly to go where no one has gone before (www.google.com ), it means that the organization needs that its employees see each situation as a challenge, that they solve the problems with creativity to get an innovative solution and also Google gives to them the opportunity to investigate in some idea that they consider interesting. Hence challenge, creativity, opportunity and innovation are Google key words, these characteristics can be accomplished only through the Googlers who are the main source of sustainable competitive advantage

(www.google.com).

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One feature that Google look for the diversity in its workforce, they look for talents in very different fields and with very different backgrounds, and also they want diversity of gender, age, nationality, culture and so on due to Google products is a tool which is used in all the world, by people from very different cultures and with very different search methods, that is why it has to be created by all the world (www.google.com). As we have seen in the development of the concept of talent management, this strategy has three elements differentiated. They are the recruitment, the development and the retention of the talented people. All of them lead the organization to achieve superior results from its employees and also to make them accomplish their own objectives. The talent management Strategy of Google is maybe the most renowned in the business world because Google makes a great effort of time and capital, which means taking a big risk, but nevertheless is resounding success. The investment done by Google is recovered through the successful results that are received from employees. The factors that Google managers consider key for that success are the right selection of the worker; it means the recruitment, and the other factor is the commitment of all Googlers with achieving the perfect search, which is the vision of Google. It means that all employees feel that they are a part of a whole and all of them share the corporate culture and that they are loyal to Google. This commitment and loyalty is much related with the strong brand soul that Google has

(www.google.com/jobs/lifeatgoogle). 4.2.2.1. The Recruitment Activities of Google Google is in continuous growth, hence the company is hiring people constantly, and more than 100 hires are made each week. Nevertheless, each one is signed by Larry Page, one of the founders of Google; it shows how the important the recruitment is for Google. The organization wants to be sure that always they choose the right person to become a Googler, they only recruit high potential and culturally compatible staff, i.e. 100% talent. That is why senior managers invest 30% of their work time on making interviews to the candidates. Google receives more than 250 applications for each job offer, each contract requires at least four interviews and numerous technical tests, it is a very long selection process and very hard for the candidates, but it ensures the best choice. An evidence of this is that Google never fires people (Willock, 2007). In the web site of Google we can find work offers which are available in offices around the world, and applying to them is very simple, the candidate has just to send the CV to the office where he or she wants to work. That simplicity in the application proves that Google seeks the talent in every place and also it look for the diversity in its workforce. In the web site also we can see how Google define it self like a place to

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work, they say that is the best place to work, and in their web site also, they explain how they work and what kind of people they need, they are dynamic and creative people.

We believe that this information has two objectives; the first one is to attract the possible candidates with its strong brand soul, about which we will speak later in the retention, and the second one is to note which is the profile that they are looking for, thus people who do not fit in that profile will not apply to the job. 4.2.2.2. The Development Activities of Google The development of employees talents can be an attraction factor if it is developed in the Google way. An employee of Google will improve their skill and also he or she will get talents that he or she can not get in the competition and also we do not have to forget the prestige that a Googler has just because he or she is working in that company. We saw in an article Turning into Talent Management of prodiverse.net in 2007 by unknown author that the development of new Googlers or Nooglers starts the first day of work in the organization, in that moment a mentor, a colleague, is assigned to the new employee, the mentor teaches him or her how they work and helps the Noogler in the adaptation to the new culture, and also the new worker tests all their ideas or projects with the mentor. The author of the article notes the difference between formation, that we can say that is the formal training in courses, and the development, which means to give the tools and the time to learn, and we can associate them with the informal training, like mentoring and coaching. Hence the real development of talents as creativity or leadership can be done only by this kind of training. According to Ringo et al. (2008), the learning approach of Google is learn fast, fail

fast (Ringo et al, 2008), it is the approach of the experimentation, where the Googlers test the ideas with the colleagues and they get the feedback also from them. According to Willock (2007), the time that the Googlers spend working is divided in three activities. They spend the 70% of the time in the daily work, another 20% in the project work, developing different new assignments in multidisciplinary teams and the last 10% of the time in whatever they want, it means that they can spend that time enjoying the great facilities of Google offices, relaxing, or also working in personal projects with new ideas, because the Googlers do not have to ask any manager if they want to develop something new, they can make a team and work on it in that time and if they conclude that the project has to be done, it will be done. That shows how the managers trust on their employees. We believe that this 10% of free investigation time

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is the best training for develop the talent, but the person has to be dynamic and curious to use it in the productive way. We would like to note how much the important is the workspace to the development of the talented people in Google. The company invests a huge capital in the design of their offices. As we have seen in a lot of pictures the Google workspace looks as a place to play, because they believe that work and play are not mutually exclusive

(www.google.com/jobs/lifeatgoogle). It means that the best way to develop their talent is having fun at the same time, as we can see in the pictures, the have very different spaces to the team work and the structure of the offices are very open and with strong colours and so on. All those things foster the creativity and the motivation to learn from workers, they think that to give the employees all this staff is not a waste of capital because it makes that employees deliver a high performance.

Pic.4: Google offices in Zurich (www.athome.kimvallee.com)

Pic. 5: Google Australian Headquarters in Sidney (www.google.es)

4.2.2.3. The Retention Activities of Google

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The most famous aspect of the retention of the talent people of Google is all the advantages that the Googlers have such as a funny, fantastic and inspiring workspace with massage room, games room, free food, a doctor and a dentist, running tracks and so on and also they have a great compensation package. The Googlers get a number of support for their development, this support is related with playing and having fun but also they have the opportunity to develop the professional skills and to foster their creativity. Google philosophy is that the appreciation is the best way to motivate; they say in its web site we love our employees, and we want them to know it (www.google.com/jobs/lifeatgoogle ). The Noogler starts to enjoy of this kind of trait since his or her first day working in Google, that day they have a meeting with the managers and a new mentor as we have said before in the development section, and also they have a small party in their desk with balloons, gifts, t-shirts and so on (Willock, 2007).

Pic. 6, 7, 8. Google offices all over the world (www.prweaver.com) and (www.google.es)

We are sure that these kinds of benefits are really motivators, but the talented people have large aspirations and only that is not enough. According to Prosser (2008), the Googles Vice President of people operation Laszlo Bock that the motivation is much more than that. The motivation depends on others aspects such as a definite

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organizational brand; it means the brand soul, and a clear communication system. To fulfil the aspirations of talented Googlers the organization offer career paths,

recognition programmes and a feedback of their performance and coaching to improve it, that aspect of the motivation is very linked with the talent development activities due to we believe that the opportunity to develop the talents and to get new skills is factor of retention for the talented and dynamic people. Other factor for the retention of employees is the coincidence of the personal objectives with the corporate objectives, in Google, the employees can develop any project that they consider interesting, for instance, a blind employee has developed a Google search engine for blind people, with this project the blind employee accomplish his objective of facilitate his live and Google expands its scope of users to a new group (www.google.com/jobs/lifeatgoogle). Another motivational factor which is related with an ethical component is that in Google employees work in a positive project, which helps the society to have a more comfortable life. According to Ringo et al. (2008), the managers say we empower them to change the world. It means that Googlers have the opportunity to improve the world, also a

and this feeling is a powerful motivational factor and Google uses it, making to known to all employees the importance of the work that they are doing, and the great and positive impact that it has in the society. Finally we would like to note the powerful factor of retention and attraction that Google has, just because it is Google, it is the brand soul, which as we explained in the concept of talent management before. The brand soul is the image that the organization has, and is the culture and its way of working. Google knows how influential is its image and they show it in the web site, there we can see videos of the Googlers explaining how they work and how happy and motivated they are working there. In conclusion we can say that the retention strategy of Google is an example to follow because according to Willock, 2007 only the 3% of employees leave the work in Google. They exploit all their potential with creativity and taking the initiative of their work. They feel very lucky because they are working for Google and the outcomes are that they develop the work in the best possible way; do not conform to do it good enough. 4.2.2.4. In Conclusion, an Example of Talent Management Strategy In Google, they make a great investment in the talent management strategy, it means in the recruitment, which is a formal process very long, but it ensures the right choice. It means also the development, which is empowered by the workspace, the way of working in teams, and overall by the distribution of the working time, that 10% of the

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free investigation time proved to the Googlers of an auto development. Finally, the retention, Google spent a huge capital in the motivation of their employees, but it is an investment because they receive, as a pay-back, the higher performance that it is reflected in the Google result. The motivation is based on to cover all the necessities that the Googlers can have and about giving them the opportunity to grow, but also it is based on the prestige that they have just because they are working at Google. Moreover they have a high degree of loyalty because almost any employee leaves the company.

4.2.3. Talented People in Google, the Googlers

People who work in this company are called Googlers. We think that with this name they have created the feeling of the unity or the big family in their employees, obtaining the loyalty, the encouragement and the motivation in the work of them (www.perfil.com). They are specialized people because they are dedicated to the search, it is their field. Google has one of the biggest research groups in the world exclusively dedicated to solving search problems, for this reason they know what they do well and how they can improve it. Their desire to improve the search experience helps them to apply their leaned concepts to new products and services; it means that they apply their ample knowledge and their new concepts in their work. And also they are talented people because they have determinate talents, for example they are creative and imaginative, because they are often seeking unexplored areas of information to innovate and thus provide costumers access to more information (www.google.es). In addition, they are always innovating as we could observe in the article Internet Search Engine Update by Notess (2005) when they launched a new database, which allowed covering over 100 English-language news sources such as The New York Times and it was updated hourly. Also, in the same moment they introduced another specialty search for Microsoft related sites and they changed their ranking of the ads that appear on the right of search results. It means that they are always looking for new ways to solve problems or to adapt themselves to the changes in the environment or to manage them. These are some of the signs of the talents that we have explained in our framework (Davis et al., 2007). For example all the walls of the Google's buildings have blackboards because nobody knows when they could have a new and good idea; it means that they are promoting the employees imagination all the time. Their products are built on the principle of openness and are designed to promote innovation and creativity across the web (www.google.es). Another sign of the talents is that they always want to obtain superior outcomes in their work or projects. They set themselves objectives that they know they can not yet

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reach, as they are aware that if they forced themselves to get them, they can obtain better results than expected. Through innovation, they try to take things that work and improve them in unexpected ways. For instance, when one of their engineers saw that the search worked well to introduce spelled words, he asked how it will work with misspelled word processing. That led him to create a spell checker intuitive and more useful. Even if people do not know exactly what they want, the fact is that they will find an answer on the Web. Therefore Google intends to anticipate the needs that have not yet expressed for their users around the world. They are always looking for new areas where they can make a difference in their products and services. Ultimately, they have constant dissatisfaction with the way things are becomes which is the driving force behind all their work; it means that they are not satisfied with excellent results. Talented people of Google are socially and emotionally competence. For instance, they can work in teams with excellent outcomes. Their teams are formed by dynamics people with excellent social abilities as we have mentioned above, who are working in a enormous range of online and mobile products, creating new characteristics for the global market and improving existing products in the European market. Google is an international company that is why they need the diversity in their team works and in their offices. In fact, one of their goals is to offer all their products and applications in all the possible languages as they can do. Thus they are able to provide a huge variety and quality of services, even in the remotest parts of the world. They know that the information does not have limits and it is in all the places all over the world.

4.2.4. How Can They Get Their Creativity?

They think that the work should be a challenge but also a fun. They believe that the genius and creativity can be given more often in an appropriate corporate culture than in an authoritarian culture, as we have explained before that the democratic leadership is the type of leadership style which promotes the creativity in companies. They foster team achievements and they are proud of the individual successes that contribute to the overall success of the firm. And also, they are empathizing employees, who are energetic and passionate, people of diverse backgrounds with creative approaches to work, play and life. Nevertheless their environment is informal,

for this reason the ideas can arise in the cafeteria, in a team meeting or in the gym, discussed, analyzed and put into practice and sometimes they may become the launch pad for a new project. Thus they are promoting entrepreneurial minds in their employees also, because they are creators and meaning makers of their work (Nilsson, 2010). Speaking about the environment, we saw in an article of Elmundo.es by unknown author that the magazine 'Fortune' devoted to Google as the best place to

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work in USA, it means that they try to maintain a good environment in their work to motivate employees (www.elmundo.es, 2007). Employees not only have great jobs, but great lives.

4.3. Conclusions and Comparisons between Zerogrey and Google

After the analysis of Google and Zerogrey, which are companies very different between them, we conclude that the Talent Management Strategy can be done in any organization to obtain a superior performance of employees and thus, to gain a sustainable competitive advantage, which is the main objective of the Talent Management. The way of apply the talent management in the organization can be completely different, because, as we have seen in the analysis of those companies, it has to be according to the necessities of the organization. The concept of talent management is very flexible and can be adapted and understood in many different ways to fit in all organizations. It is not only a strategy for big companies. In Zerogrey, they do not spend a huge amount of capital in that strategy, but it is because they do not need it, they are a firm of 20 employees. Google is a big firm all over the world, and the inversion that they do in talent management is also immense. Nevertheless, both companies know that they have pay attention to the recruitment, the development and the retention of the talent pool. The talent management strategy of Zerogrey is very informal, it is a company without HR department, and hence the responsible of the development of the strategy is the developed by a large HR department. Comparing the recruiting activities of both companies, Zerogrey hires just 2 or 3 employees per year, and the management team does that through some personal interviews, but the selection starts after the definition of the position which needs to be fulfilled, the process is not formalized. Google hires a lot of people each year, that is why, they have a very formal and a long selection process through a lot of technical tests and a huge number of interviews with different members of the HR Departments and with different managers. However, the objective of both process is the same, it is CEO, Guido Meak. The talent management strategy of Google is a formal strategy

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to find the person who fits better in the organization and who can add value to the company. One aspect in which Google and Zerogrey match is in the seek for the diversity in their workforce, due to both their business are global, hence they have to be developed by people for all the world to be able to get the market ability and to recognize all the necessities that all kind of customers could have. Comparing the development activities of both enterprises, we have the same conclusion that in the retaining, Zerogrey development is smaller than Google development, but both base it on the informal training as mentoring and auto development, the first one does it giving to employees the freedom to develop the project in the way that the employee wants and Google does it giving to employees the 10% of the work time free to develop their own projects. Hence we can say that both organizations foster the creativity and inventiveness of employees. Comparing the retention activities of both companies, Zerogrey does not do a large investment in the employees motivation but they are loyal and transparent with them, they provide to employees with the opportunity to do the work that they want and with the opportunity to grow, the happiness is the main motivational factor. Google does a large investment in the workspace to the wellness of Googlers, but that is only one part of the motivation factor, the company gives also great opportunities to grow and develop their talents. Nevertheless although the size of the investment is different, both firms base their motivation factors on the happiness of their employees. If we compare the work environment of Zerogrey and Google, we could say that in the first company they have a strict schedule and a small room for employees, while in the second firm they have a flexible schedule and also, with diversity of environments to the team work and funny and ample spaces. And Google, employees can choose their work, for this reason they can change of work and their place to do it frequently. Nevertheless, both companies foster a motivation, hard-working, high-tech and youth environment, where workers are encouraged to work there. In conclusion, the talent management activity is not an issue of capital invested, it is about be aware of how the important is the workforce for the outcome of the organization and try to exploit the full potential of the talented people and also trying to have happy, loyal and motivated employees. That is the case of these two different enterprises both knows that talented people are essential to obtain a sustainable competitive advantage but also, to know how manage that people is essential overall, in the fields where the activities are developed by the creativity. To be aware of that fact has been the objective of our project, it means to know what talent management is, why it is now more relevant and which kind of advantage it can

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provide and also, to know how recognize talented people to attract them into the organization. Finally, our last aim has been to demonstrate that talent management in every organization, the key is to fit the corporate strategy with the talent management strategy.

RECOMMENDATIONS FOR THE FUTURE

In the conclusion we have summarised where we have focused our thesis, but that is not everything that can be said about talent management, talented people and overall about creativity. In the last part of this dissertation we would like to note some more aspects which can be studied in the future. These aspects are the three followings: the relationship between the creativity and the freedom, the fact that the companies do not know how to find the right talented people that they need and finally, one suggestion for the empirical study. As we have seen we have studied two successful organizations, which use the talent management but we consider also interested the study of a company which does not utilize that strategy to see if it is successful or not and to know how this strategy can be implemented. First, our opinion about the relation between the creativity and freedom is that without freedom the creativity is impossible, but that freedom has limits. It means the existence of deadlines, tasks, objectives and so forth in the organization is necessary to start the process of the creativity. Without them a talented person does not have the motivation or the reason to be creative, with this we would like to say that all individuals need a purpose to be creative. Nevertheless, the freedom has to be completely in the way to do or to accomplish the objective; it means the talented person has to be free to get to the end of race, through the way that he or she considers the best one, without rigid steps or routines. Second, we would like to deep into the fact that very often enterprises do not know how to find the correct talented people, because they do not know how to identify firstly, what they need and secondly, they do not know how to look for it. We consider that it could be possible to link that fact with the high unemployment that all the countries have currently.

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and creativity but also, we have learned talents that we can use future professional life.

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