Mallik Arjun Appa

ISSN (Online): 0976-0148
ISSN (Print): 0976-013X
Journal of Management & Public Policy

Vol. 1 No. 1
December 2009
Editor
Srirang Jha
Editorial Advisory Panel
Mansoor Al-A'ali, University of Bahrain, Bahrain

Jacqueline L. Angel, University of Texas at Austin, USA
Damon Anderson, Monash University, Victoria, Australia
Daya Shanker, Deakin University, Melbourne, Australia
Nalin Bharti , Indian Institute of Technology, Patna, India
P K Chaubey, Indian Institute of Public Administration, New Delhi, India
Parag Dubey, Indian Institute of Forest Management, Bhopal, India
Md. Firoz, Manipal University Dubai Campus, UAE
Shama Gamkhar, University of Texas at Austin, USA
Francis Gonsalves, Vidyajyoti College, New Delhi, India
Charles Holme, Ethical Executive Training International, UK
Vidyanand Jha, Indian Institute of Management, Calcutta, India
Sanjay Kumar, Centre for Study of Developing Society, New Delhi, India
Naresh Khatri, University of Missouri, Columbia, USA
Christopher Lakra, Indian Social Institute, New Delhi, India
T Mallikarjunappa, Mangalore University, Karnataka, India
Madhu B Mishra, Sambalpur University, India
Kannamma Raman, University of Mumbai, Mumbai, India
Francesca Recchia, University of Kurdistan Hawler, Iraq
Saif Siddiqui, Jamia Millia Islamia, New Delhi, India
Purnima Singh, Indian Institute of Technology, New Delhi, India
Surya Prakash Singh, Xavier Institute of Management, Bhuwaneshwer, India
Yinshan Tang, University of Reading, Reading, UK
Nachiketa Tripathi, Indian Institute of Technology, Gauhati, India
Journal of Management & Public Policy, Vol. 1, No. 2 June 2010
Journal of Management & Public Policy (JMPP) is a biannual peer-reviewed

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CONTENTS
Editorial
The China Code: An Analysis of Chinas National Social Standards for the Textile and Apparel
Industry
Bala Ramasamy & Dra. Elisabet Garriga
5
Affective Commitment as a Mediator between Psychological Climate and Job involvement
Soumendu Biswas
16
Determinants of Organizational Citizenship Behaviour: A Review of Literature
Shweta & Srirang Jha
27
Stock Price Reactions to Dividend Announcements
T. Mallikarjunappa & T Manjunatha
37
Industrial Organization and Customer Relationship Management: The Impact on Customer

Service Orientation in B-to-B Markets
Alexander D. Stein, Michael Smith & Richard A. Lancioni 52
Editorial
I am humbled and excited about the launch of the inaugural issue of the Journal of
Management & Public Policy (JMPP). It is the outcome of efforts, encouragement and
support provided by several of my friends in academics, public administration and civil
society. We had often felt a strong need to evolve an independent forum to discuss
issues affecting management of corporations and governance of public institutions and
political establishments vis--vis public policy.
Existing journals are quite focused on either on issues pertaining to management of
corporation or dedicated to public administration and public policy. Obviously, there is
a void in terms of a critical interface between two distinct domains i.e. management and
public policy although both are influenced by each other. I am sure; the launch of this
journal will close the gap between researchers, academics, policy makers and
entrepreneurs and foster an interdisciplinary approach towards analyzing issues ranging
from shop-floor to corporate governance on the one hand and public policy
implications on the other. Editorial discretion will be used judiciously so as to protect a
unique and interdisciplinary nature of this journal.
A word of thanks for all the members of the Editorial Advisory Board: I am grateful to
all the scholars from around the world who agreed to be part of the Journal.
Srirang Jha
The China Code: An Analysis of Chinas National Social

Standards for the Textile and Apparel Industry
Bala Ramasamy* & Dra. Elisabet Garriga**
The China Social Compliance for Textile and Apparel (CSC 9000 T) is the first country
and sector specific social standard in the world, established by the China National
Textile and Apparel Council (CNTAC). The objective of this paper is to evaluate the
CSC 9000T by comparing the extent of its coverage and its implementation vis--vis
another popular international standard, the SA 8000, and two company level codes of
conduct, namely Nike and Inditex. The comparison allows an analysis that considers a
universal versus a national code, a comprehensive versus a sectoral code, and a
western-based versus an Asian-based code of conduct. Our results provide
justifications as to why the CSC 9000 T is a code that should be given attention by the
relevant protagonists as it is based on more systematic interventions to tackle the root
causes of poor compliance in Chinese reality and has a higher degree of legitimacy
due to its backing from Chinas social institutions and agencies.
Keywords: China, Social Code of Conduct, Textile and Garment
Introduction
In the early 1990s, multinational corporations (MNCs) with extensive supply chains
started to acknowledge their role in improving the general working conditions of
workers in their respective suppliers factories. This sense of responsibility was
operationalized by designing and implementing codes of conduct (Egels-Zanden and
Hyllman, 2007; Kolk and van Tulder, 2002b; Radin, 2004; Sethi, 2002). The supplier
factories were expected to heed the code and an extensive verification and social audit
systems were put into place (Cowton and Thompson, 2000; Sethi, 1999). As a result,
hundreds of codes of conduct have appeared. A recent inventory by the Organization
for Economic Cooperation and Development (OECD) reveals more than 300 of such
codes, and the numbers continue to increase unabated (Kolks and Van Tulder, 2001).
Non-governmental organizations (NGOs), industry associations and other international
organizations have also joined in and developed international social standards and self
regulatory tools to address working conditions, particularly in developing countries
(Beschoner and Muller, 2007). The designing and monitoring of these standards
involve multi-stakeholder participation including unions, employers, MNCs, NGOs,
management consultants and academics.
Professor, China Europe International Business School, Shanghai, Peoples Republic of China
E-mail: bramasamy@ceibs.edu
**
Professor, China Europe International Business School, Shanghai, Peoples Republic of China
E-mail: egarriga@iese.edu

One recent development in this arena of codes of conduct and social standards is the
China Social Compliance for Textile and Apparel (CSC 9000 T), established by the
China National Textile and Apparel Council (CNTAC), a nonprofit industry association
comprising Chinese textile companies. As far as we know, this is the first industry and
country specific code that exists worldwide. The relevance of this code is obvious when
one considers Chinas textile and garment industry. Chinas textile and apparel industry
is the largest and the most important supply chain, covering about 24 percent of the
worlds textile and apparel trade. Nearly every large brand-name and garment producer
has a value chain that is linked to China (Krueger, 2008; Egels-Zanden, 2007). Any
initiative in social responsibility in this sector produces a greater impact given the
importance of the textile and apparel sector within the Chinese economy. Furthermore,
efforts in improving working conditions in a transition economy such as China, makes
it unique and complex (Egels-Zanden, 2007) as the globalization of economic activities
comes to terms with diverging business practices between the east and west.
The objective of this paper is to evaluate the CSC 9000 T by comparing the extent of its
coverage and its implementation vis--vis another popular international standard, the
SA 8000, and two company level code of conduct namely Nike and Inditex. The SA
8000 is a well known and respected code that takes a multi-stakeholder perspective
while the company level codes are an active and energetic initiative to implement social
responsibilities within the supply chain. Nike and Inditex were chosen due to their
American and European origins respectively, as well as their consistencies with those
standards championed by the International Labour Organization (ILO), OECD and the
UNs Global Compact (Fairbrother and Hammer, 2005). The comparison allows an
analysis that considers a universal versus a national code, a comprehensive versus a
sectoral code, and a western versus an Asian code of conduct. Our analysis follows that
of Kolks and van Tulder (2002) which uses the criteria of specificity and
monitoring/sanctioning aspects of the respective codes.
The paper is structured as follows. First, we briefly describe the contents and main
elements of the CSC 9000 T. The following section explains the methodology i.e. the
criteria and sample used. Then, we present the results of detailed comparisons based on
the specificity and monitoring/sanctioning criterion. In the final part, we discuss our
findings and implications to the industry. Our analysis provides justifications as to why
the CSC 9000 T is a code that should be given attention by the relevant protagonists
and we further highlight the way forward for the code.
The CSC 9000 T Chinas New Social Standard for the Textile and Apparel
Industry
CNTAC launched the CSC 9000 T in 2005. This code is the first CSR standard by a
Chinese organization aimed at integrating the relevant Chinese laws and regulations as
well as international conventions ratified by the Chinese government .. based on
specific conditions of the (textile and apparel) industry .. and (consistent) with the
international practices that are reasonably compatible with Chinese enterprises
(CNTAC, Annual Report 2006). This initiative by the CNTAC was mooted due to

limitations identified in the existing corporate codes and accreditation standards. In
particular, the CNTAC points to several pitfalls in the existing system. These include,
first, the expansion of the supply chain among many multinationals that makes it
impossible for them to monitor compliance to both orders and the code. Second, over
time, inspection becomes routine that detecting any real problems with working
conditions becomes difficult. Third, the direct relation between factory auditing and
product orders raises the level of hostility among factory owners towards their social
responsibilities. Fifth, the existing system does not involve active participation of
workers. Sixth, the delegation of accreditation to commercial entities has compromised
the impartiality of the efforts. Seventh, inconsistent quality of auditors results in
questionable accreditation standards. Eighth, early warning given by auditors allows
factory owners to be fully prepared to disguise any shortfalls in working conditions.
Finally, the accreditation system is seen to be too harsh in that an all-or-nothing choice
for enterprises does not contribute to the continuous improvement process in working
conditions. The CSC 9000 T is designed to address many of these concerns. Key
among these is the promotion of a social responsibility management system within a
factories routine management such that problems are identified; corrective actions are
planned, implemented and monitored.
The CSC 9000 T comprises the Principles, the Guidelines and the Self Assessment
Form as well as the Implementation Guidance. The Principles are a Collective Code of
Conduct for Chinas textile and apparel industry. The Guidelines and Implementation
Guidance specifies detailed requirements of the Principles and is designed to help
enterprises operationalize the management system to meet the demands of the code.
Finally, the Self Assessment Form can be considered as the social audit of the code
which enables the enterprise to evaluate its position with respect to the socially
responsible objectives and targets. The CSC 9000 T is a voluntary code specifically for
Chinese suppliers and international firms are free to adopt the guidelines.
The code covers ten areas: management systems, employment contracts, child labor,
forced labor, working hours, wages and salaries, trade unions, discrimination,
harassment and abuse as well as occupational health. In a nutshell, the code calls for the
establishment of a management system that envelopes social responsibility; the use of
written employment contracts for all workers; the prohibition of child and forced
labour; the adherence to specific laws on working hours; the provision of wages and
benefits which is not below the legal requirement; the acknowledgement of employee
rights to form and join trade unions and bargain collectively; the condemnation of
discrimination, harassment and abuse; and the promotion of occupational health and
safety.
Despite obvious similarities that appear between the CSC 9000 T and other well-known
codes, significance differences in terms of definitions exist. For instance, corporate
codes tend to follow definitions which adhere to international norms (such as those
promulgated by the ILO). In some cases, the corporate code defines terms unilaterally.
In other cases, the codes do not provide any specific guidance on the definition of the
standard. These are highlighted in the following sections.

Methodology
As mentioned earlier, in this paper we compare the CSC 9000 T with three other codes
- the SA 8000 and two multinational codes, Inditex and Nike. The SA 8000 was
founded in 1997 by Social Accountability International (SAI) and focuses on working
conditions and the rights of workers. It is based on the ILO and UN conventions and its
certified facilities are in more than 45 countries across 50 industries (www. sa-intl.org).
The SA 8000 is an auditable standard that is verified by trained and accredited third
party entities and takes into account 9 main areas: child labor, forced labor, health and
safety, freedom of association, discrimination, disciplinary practices, working hours,
remuneration and management systems.
Nike was among the first MNC to develop a code of conduct after a scandal in 1992 in
Indonesia where contractors were paying under subsistence wages. Since then, Nike
has been focusing on improving working conditions throughout its supply chain with
innovation in the design and implementation of its compliance model. The code is
revised and updated from time to time (www.nike.com; Frenkel and Scott, 2002).
The Inditex Group is among the fastest growing apparel and textile chain in the world.
Ranked number one in the world, in terms of units sold, it is an apparel chain which
opens more stores per year. Originating from Spain, Inditex is known for its active
involvement in CSR and has reached unprecedented agreements with unions to control
and foster their code of conduct around the world (www.inditex.com).The Inditex code
has eleven areas: child labor, non discrimination, freedom of association, harassment
and abuse, health and safety, remuneration policy, environment, subcontracting policy,
supervision and compliance as well as publication of the code.
Criteria
Our comparative analysis of the CSC 9000 T and the three codes stated above is based
on two criteria formulated by Kolk and Van Tulder (2002), namely specificity and
monitoring/sanctioning. Specificity refers to the degree to which definitions and
principles within codes are precise, detailed, explicit and unambiguous. The rationale
here is that the more specific codes are, the better they can be measured and
subsequently monitored, and leaving little room for misleading interpretation.
Monitoring refers to the extent to which provisions of the code can be evaluated in
terms of compliance. [See Table 1]
It should be noted that the specificity and monitoring criterions have been previously
used in analyzing one element within the code of conduct child labor. Our attempt to
use these criterions to compare all elements within codes of conduct comprehensively
is a first, and so there is a need to adapt Kolk and Van Tulders (2002) approach. Under
specificity, Kolk and Van Tulder (2002) identified five factors of specificity: definition
and minimum standards, applicability, targeted organizations, reference and nature of
the code. We adapted the first and last factors to include definitions, quantifiable
standards and circumstantial aspects of the code, as shown in Table 1. We also
excluded the third factor i.e. targeted organizations, as all the codes in our analysis are

targeted at the same entity whether it is called business enterprise (CSC 9000 T),
company (SA 8000), partner contractors (Nike) or external manufacturers and
workshops (Inditex). As for monitoring and sanctions, rather than analyzing each
article of the code, we make a comprehensive comparison of the entire code. Factors
used to compare the monitoring aspect are shown in Table 2.
Results of Comparative Analysis
We discuss the comparison between the four codes under two main criteria: Specificity
and Monitoring/Sanctioning. Detailed comparative analysis is provided in Appendix 1.
The discussion that follows draws from this analysis.
Specificity
We follow the articles provided in the CSC 9000 T and analyse the specificity of the
code based on the criteria explained earlier.
Management Systems. This is the first article in the CSC 9000T. The management
systems itself is considered an independent component, although it envelops all other
articles/elements in the code. The article emphasizes the continuous improvement
nature of the code as the system is based on a plan-do-check-action model. In this way,
the CSC 9000T distinguishes itself from other codes; particularly company based ones,
by emphasizing the need to bring CSR into the routine operations of the company as
described earlier. Systematic documentation including procedures to meet objectives
and targets set jointly by stakeholders are clearly articulated and set out. The SA 8000s
management system is considered at the end of its code. Like the CSC 9000 T, it
presents a large and detailed explanation as to how the policy of social accountability
and labour conditions are effectively documented, maintained, communicated and
made accessible to all stakeholders. Continuous improvements are emphasized
although these are geared towards reaching the standards set by SAI. The SA 8000
management system also includes the control of suppliers, sub suppliers and sub
contractors such that their performance and commitment to the code is evaluated and
documented. This seems missing in the CSC 9000 T. Nike and Inditex do not have any
articles on management systems.
Employment Contract. Only the CSC 9000 T has a specific article on employment
contracts. This reflects the local situation in China where migrant labour forms a large
proportion of the workforce in textile and apparel factories (CNTAC, 2006). The CSC
9000T calls for a written employment contract with specific guidelines on the terms
and conditions of employment. The reference is Chinas labour law, which in its recent
revision includes written contracts with fixed term, part-time and contract workers. All
other codes do not specify a need for an explicit contract on employment.
Child Labour. This issue has been of great interest by all codes (Kolks and Van Tulder,
2002). All codes define and quantify the minimum age, although differences exist. The
CSC 9000 T is based on the Chinese law that defines a child labour to be one who is
below 16 and a juvenile worker to be one that is above 16 but below 18 years old. The

SA 8000 specifies 15 to be the minimum age (i.e. based on the ILO standards) although
the fall back position is the minimum age law of the country if it is higher. Inditex and
Nike apply the minimum age laws of their respective country of origin i.e. 16 and 18.
Inditex and the SA 8000 do provide some exceptions for child labour above 14 years of
age. Thus, the reference point of this article is different Chinese laws, home country
laws and the ILO standards.
The CSC 9000 T and the SA 8000 introduce the concept of juvenile/young workers and
calls for protection of this age group against intensive, hazardous, harmful and risky
work. The SA 8000 emphasizes the need to ensure schooling opportunities which
follow ILO recommendations while the CSC 9000T calls for a guarantee that these
juvenile workers receive physical examination at least once a year.
Forced Labour. The CSC 9000T states clearly the definition of forced labour.
Similarly, the SA 8000 and Nike have similar articles that prohibit forced labor that is
based on the ILO standards. Inditex however, does not have such an article. It is
worthwhile to note that the CSC 9000T takes into account some Chinese characteristics
in that certain exceptions to the definition are made, namely when 1) any work or
service is carried out under compulsory military service laws; 2) any work or service is
part of normal civic obligations; 3) any work or service is carried out in cases of
emergency (such as was, fire, flood, famine, earthquake etc.) that would endanger the
existence or the well being of the whole or part of the population.
Working hours. There are some clear differences between the codes in this category.
Inditex does not have any article on working hours, although the fall back position is
the local regulation. The SA 8000 puts 48 hours as the maximum while the CSC 9000
T specifies 40 hours. Nike bases its maximum on US regulation i.e. 60 hours a week
with overtime. The SA 8000 and the CSC 9000 T details overtime, a common practice
in the textile industry. Overtime work is allowed but not more than 36 hours per month
and 12 hours a week for the CSC and SA respectively. The CSC 9000T is more flexible
in calculating the average working hours in that it can be averaged across the week,
month, season or year so that enterprises can better adapt themselves in a fiercely
competitive market. Regarding days off, one day holiday per week is compulsory in
both Nike and SA 8000 codes. Thus, the SA 8000 and Nike refer to international
standards while the CSC 9000T to Chinese laws and culture.
Wages and salaries. The four codes do not specify the amount but point to the national
industry minimum as the bottom limit. Inditex states that the salaries should be
consistent with particular professional categories; Nike calls for a clearly written
accounting statement for every pay period; the SA 8000 includes the points above but
also specifies that salaries should be in cash or checks; while the CSC 9000 T specifies
it as payment in cash.
Trade Unions. The labeling of this article is freedom of association in the SA, Nike and
Inditex. However, there is a general consensus that workers are allowed to organize
themselves into a union, and that no retaliatory actions are taken against such workers.[
Thus, the four codes recognize the right to collective bargaining. However, while other
10

codes tend to allow workers to join a union of their choice, the CSC refers to the
trade union i.e. the All China Federation of Trade Unions (ACTU). The ACTU the only
legally recognized trade union in China and its official mandate is to represent the
interests of workers; foster economic development; uphold the socialist road, peoples
democratic dictatorship and the leadership of the Chinese Communist Party. Nike,
Inditex and the SA 8000 refer implicitly to the ILO conventions while the CSC 9000 T
takes into account only the Chinese Law and its economic system.
Discrimination. The codes are similar in nature for discrimination. All codes provides
similar definitions i.e. prohibit discrimination in factories for reasons of gender,
nationality, race, sex, belief, physical disability or personal characteristics. In particular,
Nike and SA 8000 specify management practices conducive to an environment free of
discrimination such as in recruiting, promotion, hiring, remuneration, access to training,
termination and retirement. SA 8000, Nike and Inditex base their code on the ILO
articles 100 and 110 which prohibits discrimination while the CSC 9000 T is in line
with article 100. CSC 9000 prohibits discrimination against women in promotion and
pay or for reasons of pregnancy, child birth or breast feeding.
Harassment and Abuse. As with the category of child labour, Inditex and Nike use the
concept of dignity as a positive concept to emphasize how workers should be treated.
The concept of dignity is explicitly stated in the Universal Declaration on Human
Rights. The CSC 9000 T also complies with the Declaration but aims to foster
physical and physiological health.
Occupational Health and Safety. Under OHS, the four codes refer to injury among
workers, lighting, ventilation and hygienic conditions. However, the CSC 9000 T (to a
larger degree than the SA) emphasizes a management system to improve OHS through
the plan-do-check-action method.
Monitoring and Sanctioning
The monitoring and compliance of corporate codes such as those of Nike and Inditex is
by external auditors or other agencies. Although the SA 8000 emphasizes management
systems, it has its own auditors who evaluate and accreditate its compliance. On the
contrary, the CSC 9000 Ts approach is one that is internal using the PDCA (plan-docheck-action) approach. Thus, in a sense, it is the Chinese supplier who establishes the
standards of the code and monitors the results. The CSC 9000T emphasizes the need
for enterprises to integrate CSR management into the routine management system and
culture of the organization. As explained earlier, the CSC 9000T promotes the
continuous improvement approach in raising the working conditions and wellbeing of
workers. However, it seems that the supplier him/herself is responsible for raising these
standards over time.
As for sanctions, failure to comply or meet the standards of corporate codes means
losing the business relationship with Nike and Inditex. If the business deal is linked to
the SA 8000 accreditation, the fate is the same as the corporate codes. In contrast, given
that the CSC 9000T is an internal system, there may be no external punishment to those
11

companies that fail to meet the set standards. Theoretically, if enterprises do not meet
the CSC 9000T standards, they will need to address this and find ways and means
internally to meet the set standards in the next round of evaluation.
Discussion and Conclusion
There are a few marked differences between the CSC 9000T and other codes
considered in this paper. First, CSR as a management system is emphasized in the CSC
9000T with a view towards a continuous improvement in working conditions. Second,
employment contracts are elevated to a separate article and consistent with Chinas
labour laws. Third, some differences in definitions exist, for instance the minimum
legal age of workers, working hours and overtime. European and US laws are used as
the minimum in the corporate codes, while the SA 8000 uses the ILOs standards.
Fourth, some conceptual differences are also evident. For instance, while other codes
emphasize the freedom of association, the CSC 9000T refers to the right to affiliation to
the ACTU given Chinas socialist system of government. Similarly, the corporate codes
link harassment and abuse to the concept of dignity which reflects a Christian ideology.
In sum, our comparative analysis shows that the CSC 9000T in substance is in no way
inferior to the other codes. In fact, the China code takes into account the local
environment and circumstances more comprehensively than other codes, whether
corporate or international.
The more significant difference between the codes is in the monitoring and compliance
area. Corporate codes use a reward and punishment approach to ensure compliance.
Those factories that pass the accreditation tests are awarded with supply contracts while
those who fail to meet the set standards are terminated. While this may meet the
requirements of the stakeholders in the country of origin i.e. the US and Europe, it may
not necessarily improve the working conditions of labour in China. Although the SA
8000 has provisions for training and improvements, the manner in which it is
implemented is not very different from corporate codes. External auditors are utilized
to inspect and rate factories. If MNCs use the SA 8000 accreditation as a condition for
supplier contracts, the outcome is similar to corporate codes. Although some may argue
that introducing higher standards would raise the working conditions in developing
countries (Harrison and Scorse, 2007), this may produce a contrary effect in China. The
incentive to cheat is high (Egels-Zanden, 2007), particularly when the contracts are
lucrative. A strict and higher standard decoupled from the local situation could be seen
as unattainable and so forces deviant behavior and eliminates the incentive for suppliers
to introduce changes in their factories.
In contrast, the CSC 9000T, if implemented according to its objectives, is aspirational
in nature as it tries to make a case that voluntary compliance will, meet the
enterprises social responsibility and financial objectives, reduce operational risks, and
achieve continuous improvement (CNTAC, 2006). Thus, the CSC 9000T does not
have third party accreditation but rather an internal mechanism that promotes
improvements in workers wellbeing.
12

The launching of a Chinese code to a certain extent marks a change in approach
towards improving working conditions of millions of people in the industry. On the one
hand, the Chinese government admits that something tangible needs to be done to
improve the wellbeing of its populace to ensure a harmonious society. On the other, it
departs from the stick approach to one that is carrot based. The harsh all-or-nothing
approach has not made a significant impact on the wellbeing of workers. Previous
studies have noted that while Chinese firms may formally agree to such codes as a
condition for continued business, there is no assurance of sincere and complete
compliance (Krueger, 2007; Egels-Zanden, 2007). When factory owners understand
social compliance as something that is externally imposed (which may entail additional
costs), unethical behaviours flourish. Recent studies have also highlighted the necessity
to complement codes of conduct and monitoring programmes with more systematic
interventions aimed at tackling the root causes of poor compliance that affects not only
economic performance but also social conditions (Locke et. al., 2007; Frenkel and
Scott, 2002). Some studies emphasize organizational variables (e.g. management styles,
organizational structure and communication) and the relationship between the MNCs
and factory owners as critical in the compliance model (Locke et. al., 2007; Locke and
Romis, 2007). Frenkel and Scott (2002) in particular show how collaboration between
the MNC and the supplier enhances both types of performances. Earlier, Paine (1994)
had argued that such collaborations should be based on common values and standards
of the stakeholders. Theoretically, the CSC 9000T is an attempt in this direction. Its
objective is to help enterprises to review their own CSR management system and to
find out the gap between voluntary social responsibility actions and the requirements of
the CSC 9000T (CNTAC, 2006).
Like other codes, there is no guarantee that the CSC 9000T would indeed meet its
objectives. However, compared to other codes, the CSC 9000 T has a certain degree of
legitimacy in that it is supported by the Chinese government through the CNTAC. It is
home grown and so would garner the necessary support from all relevant agencies in
China. The implementation of the China code is still at a nascent stage. The trial run of
the CSC among 10 large producers has so far produced laudable results (CNTAC,
2006). Nevertheless, this is not sufficient. A more objective method of monitoring the
progress of the code is required. In this regard, it makes sense that the support by large
overseas brand-names (Nike, Inditex, Prada and the like) be co-opted to ensure a much
wider implementation of the code. Dialogue among the related parties has been proven
to be critical (Beschoner and Muller, 2007). The involvement by MNCs in capacity
building and training aspects considered important in ensuring compliance (FIAS,
2007) would add to ensure the success of the China code. More importantly, the
nature of the code which emphasizes management systems and one that is based on
reward should be adopted by these brand-names to ensure success of the code. This
would not only benefit workers, but also satisfy the many stakeholders of those MNCs.
13

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15
Affective Commitment as a Mediator between Psychological

Climate and Job Involvement
Soumendu Biswas*
The psychological climate of the workplace is viewed as one of the most important
environmental factor affecting an individuals workplace attitudes. At the same time, a
favourable climate in the absence of commitment can be a source of misuse of
workplace freedom by individuals. The present paper attempts to study the mediating
role played by affective commitment between psychological climate and job
involvement. Data for the present study were collected from manufacturing as well as
service sector organizations all over India. The results and their theoretical and
practical implications are discussed in detail.
Keywords: Affective Commitment, Psychological Climate, Job Involvement
Introduction
The increasing global spread of business and the greater participation of multi-national
corporations (MNCs) in developing markets, calls for focusing attention towards
management practices in different parts of the world (Budhwar, 2003; Napier & Vu,
1998). In this context, it is worth mentioning that among the rapidly expanding
economies of the world, India holds a position of prominence (Biswas, Giri, &
Srivastava, 2006; Budhwar & Boyne, 2004). It is evident therefore, that global changes
have had a significant impact on the Indian economy too.
Moreover, Chauhan, Dhar, and Pathak (2005) observed that change per se is a routine
affair in the contemporary business scenario; what is more important is a recognition of
the fact that managerial efficacy need to keep pace with such rapid transformations.
Furthermore, it appears that in the era following the South East Asian financial crisis of
1997-98 (World Bank, 2001) and in accordance with the report published by Goldman
Sachs investment bank (2003), India along with Brazil, Russia, and China is poised to
be a major player in the world business scenario.
Culture and Behavioural Aspects of Business
In continuation with the discussion about swiftly evolving economies such as India, it is
necessary to examine the cultural factors that affect behavioural features of managerial
effectiveness in the organizational context (Biswas, 2006). This viewpoint is further
corroborated by an earlier study by Zucher (1968) wherein it is mentioned that in a
cross-cultural context it is necessary to study behavioural constructs especially with the
continuous growth of worldwide commercial operations.
With reference to India in particular, it has been observed that its national culture has a
rich heritage which is helpful in clarifying different human actions. It is further
understood that these cultural facets are deeply ingrained in the individual psyche and
*
Assistant Professor, Management Development Institute, Gurgaon, India Email: sbiswas@mdi.ac.in
16

are relevant in positive cognition and affect of individuals at the workplace (Rao &
Abraham, 2003). At the same time, the indigenous culture of India has been quick to
accept alien customs and mores while preserving its distinctive values and rules
(Biswas et al., 2006). This has established the Indian social order as a classic example
of the oriental world. In terms of crossvergent socio-cultural ethos therefore, India
stands as a leader in establishing the norms and practices that dominate managerial
practices in the contemporary borderless business environment (Ralston, Holt, Terpstra,
& Kai-Cheng, 1997). In a cross-cultural framework, the above discussion indicates that
the stature of India is quite elevated in the global socio-economic map. So much so that
Varma, Budhwar, Biswas, and Toh (2005) noted that Indias traditional cultural
systems are acting as fulcrum of the South East Asian business environment.
To continue, England and Lee (1974) noted that during periods of environmental
turmoil, societies in emergent economies such as, India tend to follow a path that leads
to stability. This further implies that in a bid to maintain internal homogeneity and
acclimatize to the external changes, society focuses on retaining certain behavioural
aspects that are indigenous and at the same time give way to a certain level of novelty.
Given that organizations operate within the domain of societal norms and values, it is
evident that behavioural aspects of managing organizations call for further study. Based
on this supposition, the objective of the current study was formulated wherein the
interrelationship between four behavioural constructs were examined namely,
psychological climate, affective commitment, and job involvement. More specifically,
the present study investigates the causal impact of psychological climate on job
involvement through affective commitment which acts as the mediator. The following
section reviews literature related to the key variables.
THEORETICAL BACKGROUND
Psychological Climate (PC)
Before the introduction of the New Economic Policy (NEP) in 1991, the Indian
business environment was discernible through the dominance of firms in the
manufacturing sector. These firms, whether public or private, were usually large
organizations and were marked by mechanistic processes and rigid practices (Biswas &
Varma, 2007). In fact, firms belonging to the service sector such as, educational
institutions, healthcare organizations, and media and communications were basically
owned by the state. This was a direct consequence of Nehruvian welfare philosophy
that emphasized pluralistic utilitarianism. The fall out of such a socio-political
arrangement was the lack of emphasis on individual behavioural aspirations (c.f.
Varma, et al., 2005). Thus, till the privatization of the Indian economy in the early
1990s, Indian organizations were extremely bureaucratic and were characterized by
one-way flow of decision making from the top to the bottom. Indeed, Hofstede (2001)
observed that such managerial philosophies and practices are not uncommon in social
cultures that are dominated by collectivism and high power distance norms.
However, with the liberalization of the Indian business environment, managerial
practices especially those related to cognitive and affective facets of individual
employees at the workplace underwent major alterations. Furthermore, human resource
17

(HR) practices in Indian firms have experienced a sea change, as contemporary HR
policies and practices are designed in a manner that promotes individual involvement
on-the-job and encourages extra-role behaviour in addition to the in-role behaviour of
employees (Biswas, 2006; Budhwar & Khatri, 2001; Pattnaik & Biswas, 2005). As
Biswas and Varma (2007; p.666) observed that HR practices in India are increasingly
geared towards improving the way individual employees perceive their day-to-day
working environment, or the way they perceive the psychological climate [italics
added] in the workplace.
Thus, to understand the group of actions in relation to the administration of members of
an organization, the appropriate literature recommends an investigation of those
variables that are related to an individuals acuity a propos their immediate workplace
atmosphere based on their everyday experiences (Schneider, 1975; Strutton, Pelton, &
Lumpkin, 1993). In this regard, it is worth noting that the relevant literature recommend
the examination of psychological climate as a primary antecedent of a variety of
individual-level outcomes such as affective commitment, job involvement, and
organizational citizenship behaviour (James, James, & Ashe, 1990; Parker, Baltes,
Young, Huff, Altmann, Lacost, & Roberts, 2003; Woodard, Cassill, & Herr, 1994).
This article seeks to empirically inspect these theoretical suggestions in the context of
the Indian management scenario.
Affective Commitment
Commitment of a person at the place of work is revealed in a variety of behaviour such
as obligation to his/her organization, to his/her immediate workgroup, or to another
individual at office (Meyer & Allen, 1997). The current study conceptualizes affective
commitment as an attitude borne out of an individuals awareness about his or her daily
work settings and the extent to which he/she is devoted to his/her employing
organization (Blau & Boal, 1987; Porter, Steers, Mowday, & Boulian, 1974). In fact,
affective commitment is one of the three factors along with normative and continuance
commitment that makes up the higher-order construct of organizational commitment
(Meyer & Allen, 1997).
Affective commitment has been stated in literature to be linked with variables that
pertain to individual character of employees such as, attachment to job and other rolerelated issues like, job characteristics, professional behaviour, and work experiences
(Hrebiank & Alutto, 1972; Koch & Steers, 1978; Morris & Koch, 1979; Steers, 1977;
Welsh & Le Van, 1981). However, of all the frequent consequences of affective
commitment, job involvement and organizational citizenship behaviour have received
extensive consideration in the relevant literature (Hom, Katerberg, & Hulin, 1979;
Ibrahim & Rue, 1994; Mathieu & Zajac, 1990; Meyer & Allen, 1986; OReilly &
Chatman, 1986; Smith, Organ, & Near, 1983; Tett & Meyer, 1993; Williams &
Anderson, 1991).
18

Job Involvement
According to literature, job involvement is a construct that arises out of interactions
between individual disparity of sensitivity about the work settings and personality traits
(Ruh, White, & Wood, 1975; Sandler, 1974; Schein, 1983). According to Lodahl and
Kejner (1965), job involvement affect people for whom his or her job constitutes the
most important portion of life. Thus, job involvement can be conceptualized as the
degree to which a person identifies psychologically with his work or the importance of
work in his total self image (Lodahl & Kejner, 1965; p. 24). Hence, job involvement
appears to be a construct that follows directly from the way individuals are affected by
their immediate work environment and interpersonal relationships (Ruh et al., 1975).
On the basis of the above discussion, the following hypotheses were tested (Figure 1
presents the conjectured model):
H1: An individuals perception of the PC will have a significant and positive influence
on his/her affective commitment towards his/her employing organization.
H2: The level of an individuals affective commitment will significantly and positively
affect an individuals job involvement.
Figure 1 The Conceptual Model
METHOD
Data Collection Procedure
The respondents involved in the study were executives/managerial cadre employees

from different organizations. Data were collected from a total of 357 participants
through a survey questionnaire. A covering letter describing the reason of the study
was attached with each questionnaire. This letter gave details about the voluntary and
anonymous nature of the study. Furthermore, participants were assured that the
responses would be used only for research purpose. The questionnaires, when
completed, were returned to the researcher via mail, in pre-stamped envelopes which
were made available with the questionnaires.
Sample
Of the 357 participants, 180 (i.e. 50.42 per cent) belonged to the manufacturing sector
companies, while 177 (i.e. 49.58 per cent) belonged to service sector organizations.
Moreover, 83.9 per cent of the survey participants were males, while 16.1 per cent were
females. The average age of participants was 36.9 years. The average weekly hour
spent by the participants at work was 52.4, and their average years of work experience
was 10.7. Finally, 7.3 per cent of those surveyed belonged to senior management, 35.6
per cent were from middle management, and 57.1 per cent reported working at junior
management levels.
19

Measures
Psychological climate was calculated using the Psychological Climate Measure as
reported by Brown and Leigh (1996). This scale comprised six factors of PC namely,
supportive management, role clarity, contribution, recognition, self-expression, and
challenge and included 21 items. The reliability measure of this scale was found to be
.90.
Affective commitment was measured using the eight items reported by Meyer and Allen
(1997). The reliability coefficient of this scale was .82.
Job involvement was measured using 4 items of the Job Attitude Scale as developed
and reported by Lawler and Hall (1970). This scale measured the affective attachment
of individuals with their job. The value of the Cronbachs alpha representing the scale
reliability was .82.
Data Analysis Technique
The Statistical Package for Social Science version 10.0 (SPSS 10.0) and the Analysis of
Moments Structure (AMOS 4.0) were used to analyze the data. The statistical analyses
that were conducted included a measurement and a structural equation model (SEM).
The path model based on the hypotheses emerging out of the review of literature was
subjected to structural equation analysis and fit tests. Apart from the regression
analysis, a variety of statistics including the normed Chi-square (2/d.f.), goodness-offit, centrality parameters, and normed-fit-indices as provided by AMOS 4.0 (Arbuckle
& Wothke, 1999) were utilized to achieve the results.
RESULTS
Table 1 presents the means, standard deviations, correlations, and reliability indices for
the key variables of this study. It may be noted that the key variables were significantly
correlated; psychological climate and affective commitment (r = .38, p .01); and
affective commitment and job involvement (r = .28, p .01).
Table 1 Descriptive statistics and Correlation Matrix (N=357)
Mean S.D. 1
2
3
Psychological 3.65
.53
(.90
)
2.
Affective 3.52
commitment
.64
.38* (.82)
3.52
.60
.48* .28*
1.
climate
3. Job Involvement
(.82)
*p.01
Values in parentheses are reliability indices (Cronbachs alpha)

In order to examine the causal linkages, multiple regression analyses were conducted
on the variables included in this study. Table 2 shows the standardized regression
estimates between the key constructs. As shown in the following table, affective
commitment was significantly influenced by psychological climate (standardized =
20

.64, p .01). Moreover, affective commitment significantly and positively influenced
job involvement (standardized = .53, p .01)
Table 2 Regression Estimates
Standardized C.R. Remarks
.64*
7.90 H1
accepted
Psychological
climate
affective commitment
7.34 H2
accepted
Affective commitment job .53*

involvement
* p.01
In order to calculate the fit indices that explained the relationships between the
hypothesized paths among the latent constructs, AMOS 4.0 SEM procedures (Arbuckle
& Wothke, 1999) was used. The present study used the maximum likelihood
estimation (MLE) algorithm to determine the fit indices. Accordingly, the Goodnessof-Fit Index (GFI) and the Root Mean Square Error of Approximation (RMSEA) were
reported as the absolute fit measures.
According to Byrne (2001), absolute fit
measures should be used for comparison between the hypothesized model and an
absence of any other model. The other measures which were also reported were the
Tucker-Lewis Index (TLI) and the Comparative Fit Index (CFI).
These indices
indicated a comparison between the hypothesized model and the model with maximum
constraints. Finally, the normed chi-square value was also used as an acceptable
measure of fit.
Table 3 shows the fit measures of the proposed model. For the model as depicted in
Figure 1, the normed 2 value is 2.59. The GFI is .87. The TLI is equal to .86, the NFI
value is .82, and the CFI value is .88. With the threshold value of RMSEA being 0.07,
the value of RMSEA for the proposed model is 0.07. Finally, the AGFI and the PGFI
values are equal to .83 and .69 respectively, thus confirming a good fit of the model.
Table 3
Fit Indices
Normed
2
GFI
TLI
NFI
CFI
AGFI
PGFI
RMSEA
Proposed
Model
2.59
.87
.86
.82
.88
.83
.69
.07
Independent
Model
12.67
.37
.00
.00
.00
.31
.34
.18
21
DISCUSSION AND CONCLUSION

The results established the relationships between psychological climate as antecedent of
job involvement mediated by affective commitment. As conceptualized, psychological
climate refers to the way in affective commitment system being the transmitter of
psychological climate also assumes significant relevance.
Further, the results demonstrated that a positive psychological climate leads to an
individual experiencing psychological empowerment, which is reflected in positive
attitudinal change towards the execution of their jobs. This explains the role of
psychological climate in positively influencing employees affective, normative, and
continuance commitment to their organization. Thus, a favourable psychological
climate makes it possible for individuals to widen their activity-domain and enhance
their dedication to their organization. This process is reflected in the results related to
the first hypothesis, which predicted a positive impact of psychological climate on
employees affective commitment.
The results of the present study establish a positive causal link emanating from the
affective commitment construct leading to the job involvement construct. This implies
that components of commitment lead to a greater attachment of individual with his/her
organization. Given that, affective commitment and job involvement are both affect
related components of an individuals attitude, acceptance of the second hypothesis of
this study serve as an empirical support for such a theoretical conjecture. Moreover, as
an individuals work lies within the broader framework of organizational activities, the
acceptance of the second hypothesis further corroborates the theoretical presumption
that an individuals attachment to his/her workplace as reflected by his/her level of
affective commitment will complimentarily influence the degree to which he/she is
involved in his/her job.
The results of this study are not without implications for the practicing managers
especially those who are concerned with the human resource functions in an
organization. Firstly, managers should note that they should provide such a daily
working environment to their employees that the latter does not feel cognitively or
affectively cramped in discharging his/her duties. This can be done providing ample
scope for individuals to express themselves at their workplace.
Secondly, managers should also observe whether the provision of an encouraging
psychological climate is contributing to an individuals affective commitment. In the
absence of a transformation of a positive psychological climate into a greater affective
commitment, there exists a possibility of misuse of workplace freedom by the
employees.
Finally, managers should understand that for an employee who is committed to his/her
organization, it is important that his/her immediate work settings are valuable to
22

him/her to the extent that it reduces his/her cognitive and affective dissonance.
Reduction of cognitive dissonance will lead to higher levels of job involvement.
Future Research Scope
Three areas of future research emerged out of this study. Firstly, one may examine the
role of identification as a second-order mediator between psychological climate and job
involvement. Secondly, the current study focused on data related to a single culture,
namely that of India. Future researchers may highlight the cross cultural validity of the
study model. Finally, researchers may also carry out longitudinal studies on whether
affective commitment continues to act as the mediator variable between psychological
climate on the one hand and job involvement on the other.
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26
Determinants of Organizational Citizenship Behaviour: A

Review of Literature
Shweta* & Srirang Jha**
Scholars have studied various factors contributing towards Organizational Citizenship
Behaviour (OCB) over the last three decades. However an integrated approach to the
determinants of OCB is yet to emerge. Most of the researchers have examined the
impact of only one or two factors on OCB, occasionally taking a third factor for
probing its mediating role. Role of a number of important factors such as internal
communication patterns, organizational culture, organizational climate, vision,
mission and strategies, etc. as possible determinants of OCB has not been studied at
length. Moreover, there is an urgent need to develop a composite view on the
determinants of OCB while formulating any holistic policy to augment citizenship
behavior among the employees. This review paper presents a comprehensive
framework for delineating the determinants of OCB for the benefit of practicing
managers as well as discerning academics and researchers.
Key Words: Organizational Citizenship Behaviour, Determinants, Integrated
Approach
Introduction
Organizational Citizenship Behaviour (OCB) is characterized by discretionary efforts
of the employees for the benefit of an organization without any expected rewards. OCB
has evolved as a powerful concept over the last three decades. Both researchers and
practicing managers are engaged in decoding the factors that augment OCB at the shopfloor and corporate offices across all sectors, more so in knowledge-driven
establishments. OCB has been generally linked to increased efficiency and profitability,
innovation and process improvement, and above all, customer satisfaction and retention
and above all, ability of the employees to cope with several organizational
uncertainties.
Characterization of OCB as discretionary has however been challenged by scholars as
untenable (Zellars, Tepper & Duffy 2002). Indeed, distinction between required
behavior and behavior that go beyond ones job description is too indistinct to merit
any definitive labeling such as organizational citizenship behaviour especially when the
role perceptions of the employees and employers vary inordinately (Rousseau, 1989,
Graham, 1991, Van Dyne, Graham , & Dienesch, 1994, Morrison, 1994, Pond,
Nacoste, Mohr, Rodriguez, 1997, Lam, Hui,, & Law, 1999). Further, Tepper, Lockhart,
Lecturer, Apeejay School of Management, New Delhi, India

E-mail: shwetajha.asm@gmail.com
**
Assistant Professor, Apeejay School of Management, New Delhi India E-mail: jha.srirang@gmail.com
27

and Hoobler (2001) observed that employees indulgence in extra role behavior depend
on how far they define such efforts as an integral part of their jobs.
Concept of OCB
Despite raging controversy over the nature of OCB, it is interesting to explore how the
concept evolved and influenced management perspectives in recent times. Dennis W.
Organ pioneered the concept OCB in late 1970s although scholars often endeavoured to
account for the voluntary extra-role behavior or pro-social behavior at the workplace
inspired by their own volition sans any remunerative considerations even during the
formative stages of the evolution Management literature (Barnard, 1938, Roethlisberger
& Dickson, 1939). Moreover, the scholars having research interest in OCB have
benefited from the studies conducted in Social Psychology as well (Blau, 1964, Katz &
Kahn, 1966, Krebs, 1970). Organ (1977) published a paper titled A Reappraisal and
Reinterpretation of the Satisfaction-Causes-Performance Hypothesis that generated
tremendous academic interest among the scholars and practitioners to decode the
antecedents of such casual contributions of the employees which were not the part of
their job description and as such could not be a source of reward or punishment (in case
of non-performance).
Organ along with his doctoral students field-tested the hypothesis and published the
outcomes in 1983. All the efforts made by the employees to help their colleagues or to
conform to the contractual role prescription were termed as Organizational Citizenship
Behaviour or OCB (Bateman & Organ, 1983, Smith, Organ & Near, 1983). It was also
assumed that job related attitudes of the employees such as job satisfaction, turnover
intentions and organizational commitment were best exhibited through actions over
which they had greater discretion. Studies by Organ and his colleagues confirmed that
employees with higher job satisfaction participated in OCB more enthusiastically. They
delineated two dimensions of OCB viz. altruism, or helping specific persons, and
generalized compliance, a more impersonal form of conscientious citizenship. Later,
Organ (1988) added sportsmanship, courtesy and civic virtue as other dimensions of
OCB alongside altruism and generalized compliance. Williams & Anderson (1991)
classified OCB into two distinct categories: OCBI behavior that is directed towards
individuals in the organization; and OCBO behaviour that is directed towards
augmenting organizational effectiveness. While altruism and courtesy are associated
with OCBI, conscientiousness, sportsmanship and civic virtues are connected to OCBO
(Van Dyne, Cummings & Parks, 1995).
Organs classification of various dimensions of OCB may be summarized as under:
Altruism, helping other members of the organization in their tasks (e.g.

voluntarily helping less skilled or new employees, and assisting co-workers who
are overloaded or absent and sharing sales strategies);
28
Courtesy, preventing problems deriving from the work relationship (e.g.

encouraging other co-workers when they are discouraged about their
professional development);
Sportsmanship, accepting less than ideal circumstances (e.g. petty grievances,
real or imagined slights);
Civic virtue, responsibly participating in the life of the firm (e.g. attending
meetings/functions that are not required but that help the firm, keeping up with
changes in the organization, taking the initiative to recommend how procedures
can be improved); and
Conscientiousness, dedication to the job and desire to exceed formal
requirements in aspects such as punctuality or conservation of resources (e.g.
working long days, voluntarily doing things besides duties, keeping the
organization's rules and never wasting work time).
In view of diverse interpretations of the term vis--vis its nature and scope, Organ
redefined OCB as efforts that contributed to the maintenance and enhancement of the
social and psychological context that supported task performance (Organ, 1997).
DETERMINANTS OF OCB
Individual Dispositions & Motives
Individual dispositions e.g. positive affectivity, negative affectivity, conscientiousness,
agreeableness etc. have been linked to OCB (Organ & Ryan, 1995). Interestingly,
Konovsky and Organ (1996) predicted that agreeableness would relate particularly with
altruism, courtesy, and sportsmanship, whereas conscientiousness would relate with
generalized compliance. Extraversion has also been described as key dispositional
determinant of social behavior (Barrick, et al., 2005). However, Comeau & Griffith
(2005) provided empirical evidence contrary to the popular notion that individual
dispositions and OCB were linked.
Locus of control also plays an important role in determining the level of OCB displayed
by the employees. People with internal locus of control tend to engage in OCB more
enthusiastically than those with external locus of control (Blakely, Srivastava &
Moorman, 2005). However, this assumption needs to be verified empirically for
broader generalization. Elanain (2007) has found empirical evidence regarding an
association between openness to experience, conscientiousness, and emotional stability
on the one hand and OCB on the other.
Besides the individual dispositions, employees are driven by their intrinsic or extrinsic
motives to indulge in OCB (Pennar et al., 1997). In case the employees are intrinsically
motivated, they would engage in extra-role behavior primarily for the benefit of the
coworkers. On the other hand, the employees with higher extrinsic motivation would
engage in OCB so as to cultivate a good image for themselves. However, such
personality/disposition oriented OCB must be managed with great care. Becton, Giles
and Schraeder (2008) observed that formally evaluating and rewarding OCB could
create emotional dissonance for intrinsically motivated employees, thereby resulting in
29

emotional exhaustion and burnout whereas these measures would invariably enhance
the intensity of OCB among employees who are extrinsically motivated.
Groups Cohesiveness
Employees generally relate to their immediate work group. Obviously, work group has
tremendous influence on their attitudes and conduct. Groups become effective and
powerful as the members develop indomitable affinity and indefatigable urge to remain
connected. Individual members are more sensitive towards others and forthcoming in
helping others in need in case the group is cohesive (Schachter, et al, 1951). Further,
cohesiveness augments positive mood states leading to greater effectiveness of the
entire group (Gross, 1954). Cartwright (1968) has truly observed that cohesiveness
leads to greater intra-group communication, favourable interpersonal evaluations and
stronger group influence over its members and higher OCB incidence especially if it
matches group norms.
Moreover, mutual benefits accruing from OCB may also augment its incidence
(Axelrod, 1984). According to Mudrack (1989), even mutual commitment of group
members towards each other and their tasks influenced the extent to which they would
indulge in extra-role behavior. Taking cue from social exchange theory, Organ (1990)
observed that OCB may reflect members effort to sustain exchange relationships
within the group something that is governed by social rather than any financial
considerations. On the other hand, Isen & Baron (1991) have maintained that positive
mood states emerging from inexhaustible cohesiveness stimulate altruism towards
fellow members.
Quality of working relationships among the group members also plays a crucial role in
augmenting their helping behavior (Anderson & Williams, 1996). Indeed, work group
cohesiveness, mutual commitment and mutual benefits engender citizenship behaviour
aimed at helping each other rather than contributing to organizational effectiveness
((Kidwell, Jr., Mossholder & Bennett, 1997).
Employee Attitudes
Employee attitudes such as job satisfaction and organizational commitment have often
been liked to OCB. Smith, Organ & Near (1983) in their seminal study found a definite
correlation between job satisfaction and OCB. Puffer (1987) arrived at a similar
conclusion in a later study. Murphy, Athanasou & King (2002) also found that job
satisfaction was substantially correlated with employees OCB. Foote & Tang (2008)
maintained that job satisfaction and OCB were significantly correlated and the
association became all the more noteworthy where the team commitment happened to
be greater. Interestingly, mere presence of higher level of team commitment would not
augment OCB in case the employees are reeling under lower levels of job satisfaction
(Tang et al. 2008).
Level of organizational commitment also influenced the incidence of OCB in several
cases (OReilly & Chatman, 1986, Organ, 1990). Schnake (1991) appropriately
observed that the employees indulge in OCB primarily as token of repayment for the
fulfillment and belongingness they derive from highly satisfying job and holistic image
30

of their respective organizations. Thus, higher levels of job satisfaction and
organizational commitment are reflected in their involvement in the affairs of the
organization beyond the call of duty. Further, Morrison (1994) tried to establish a
positive association between affective commitment and OCB which however were
mediated by job breadth. Van Dyne, Graham & Dienesch (1994) among other scholars
observed that OCB depended on the positive attitudes of the employees towards their
jobs as well as the organizations.
Job involvement is another employee attitude that contributes significantly towards
fostering OCB. According to Kanungo (1982), it refers to the degree to which
individuals psychologically identify with their present job the employees develop
strong relationship with their jobs so much so that they invest their personal resources
in their current job. Turnipseed (1996) also found that involvement and task orientation
contributed positively towards extra-role behaviour of the employees well beyond their
contractual obligations. Indeed, job involvement induces positive mood and higher
degree of professional and organizational commitment, making the current job all the
more fulfilling which in turn result in OCB (Hoffi-Hofstetter and Mannheim, 1999).
Even Mudrack (2004) has opined that employee with higher degree of job involvement
tend to focus on job-related activities even in their spare time such as thinking of
ways to perform even better.
Leader-Member Exchange and Supervisory Behaviour
Leader-Member Exchange (LMX) refers to quality of relations shared between
leaders/managers and their subordinates. Employees are most likely to engage in OCB
in case the managers display transformational leadership behavior such as envisioning,
role modeling, invigorating subordinates intellectually and communicating higher
performance expectations (Podsakoff, Mackenzie, & Bommer, 1996). Moreover,
leaders contingent reward behaviour such as expressing satisfaction or appreciation for
good performance also contribute towards employees OCB (Podsakoff et. al, 2000).
Further, employees with whom the managers share valued resources such as time,
information and personal support tend to consistently perform OCB with passion as
compared to those whose managers adhere to contractually established job roles (Hui,
Law & Chen, 1999). On the contrary, the employees may withhold OCB in case the
managers are exploitative to the extent that the subordinates feel abused (Zellars,
Tepper, & Duffy, 2002). Hence the key to employees involvement in OCB lies in the
hands of the leaders. Indeed, leaders can encourage the employees engagement in
OCBs, even in the case of thwarting personality characteristics (Emmerik & Euwema,
2007). Obviously, much depends on the leadership effectiveness so far as OCB is
concerned.
Bhal, Guati & Ansari (2009) have provided empirical evidence regarding loyalty aspect
of OCB being an outcome of LMX where organizational commitment acts as a
mediator: Commitment is an individuals identification with the organization. It is this
identification that makes the employee takes up tasks that are not routine. Since loyalty
31

as a form of citizenship behaviour is an extra-role behaviour of the subordinate, the
behaviour results from the employees sense of identification with the organization.
Organizational Justice
Organizational justice has often been linked to OCB. Greenberg (1996) has defined
organizational justice as a concept that reflects employees perception about the extent
to which they are treated fairly in organizations and how such perceptions affect
organizational outcomes such as commitment and satisfaction. Hoy & Tarter (2004)
have provided a comprehensive set of principles determining organizational justice:
The principle of equality: This presupposes that the contributions made to
the organization by individuals are in proportion to their incomes.
The principle of perception: The effect of the general perception of justice
on the individual.
The principle of polyphony: This assumes that an increase in participation in
decision making will entail an increase in fair decisions.
The principle of interpersonal justice: This presupposes that respectful, kind
and mature behaviours will be displayed in order to ensure justice.
The principle of consistency: This is based on the view that consistency in
leaders behaviours is essential to create a perception of justice among those
in inferior positions.
The principle of political and social equality: This assumes that it is
essential to share a collective organizational mission in decision-making and
to take decisions according to personal interests independently.
The principle of correction: This is related to the amelioration of wrong or
bad decisions.
Organizations which follow the general principles of organizational justice may ensure
a good measure of distributive justice (fair distribution of organizational resources),
procedural justice (propriety of procedures in decision-making) and interactional justice
(fairness in treatment of organizational members). Each of these dimensions of
organizational justice is crucial in shaping the organizational citizenship behavior of the
employees in a particular organization. Bhal (2006) has emphasized a mediating role of
procedural and interactional justice in augmenting OCB in the context of LMX. Ylmaz
& Tasdan (2009) have indicated that there exist only moderate positive relations
between organizational justice perceptions and actual OCB.
Conclusion
Scholars have studied various factors contributing towards OCB over the last three
decades. However an integrated approach to the determinants of OCB is yet to emerge.
Most of the researchers have examined the impact of only one or two factors on OCB,
occasionally taking a third factor for probing its mediating role. Impact of a number of
important factors such as internal communication patterns, organizational culture,
organizational climate, vision, mission and strategies, etc. as possible determinants of
OCB has not been studied at length. Moreover, there is an urgent need to develop a
32

composite view on the determinants of OCB while formulating any holistic policy to
augment citizenship behavior among the employees.
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36
Stock Price Reactions to Dividend Announcements

T. Mallikarjunappa* & T. Manjunatha**
Stock market efficiency has been of considerable importance in finance literature.
Three forms of efficient market hypothesis (EMH) have been examined by researchers
and analysts. This paper examines the stock price reactions to dividends, one of the
publicly available information, to test the semi-strong form of EMH. The study is based
on the dividend announcements of 149 companies which are part of the BSE-200 Index
that announced dividends for the financial year 2002. To test the stock price reactions,
the expected returns are found out by regressing the daily returns of companies and
market index for the period January 1998 up to the relevant date applicable to
companies. Based on these results, abnormal returns, average abnormal returns (AAR)
and cumulative average abnormal returns (CAAR) are worked out for 29 days prior to
and 30 days after the dividend announcement (event) date. The analysis of the results
shows that AARs do not approximate to zero and CAARs show wide fluctuations
indicating that abnormal returns can be earned several days after the event day.
CAARs show that abnormal returns can be earned 24 days after the event day. From
this we conclude that Indian market is not efficient in the semi-strong form.
Introduction
Modern portfolio theory is based on the assumption that financial markets are capable
of incorporating value-changing information into the security prices. It also recognizes
that all markets are not absolutely efficient. Depending upon the type of value
changing-information that a market can quickly incorporate in pricing its securities,
researchers have classified the market efficiency into three distinct forms the weak,
the semi-strong and the strong. The strong-form has been further classified by Fuller
and Farrell (1987) into two groups, the super-strong form and the near-strong from.
The research on market efficiency has been codified under the heading called efficient
market hypothesis (EMH) in finance theory. The weak form of EMH states that share
prices reflect all historical value-changing information, the semi-strong form states that
security prices reflect all publicly available value-changing information and strong
form asserts that security prices reflect all value-changing information. The superstrong form states that all the information which is typically available only to insiders
and exchange specialists is incorporated in the security prices and the near-strong form
states that all the private estimates developed from public information is incorporated
into the security prices. If the market efficiency is accepted as true, no one can earn
superior returns than the market. While there are a number of studies which support the
existence of market efficiency, the real world activity challenges this assumption.
*
Professor, Department of Business Administration, Mangalore University, Mangalore, India E-mail:

tmmallik@yahoo.com
**
Professor & Principal, Bapuji Academy of Management & Research, Davangere, India E-mail:
tmmanju@yahoo.com
37

Everyone knows that hundreds and thousands of investors flock around the computer
screens in different parts of the world to trade in securities. Even companies get
engaged in this kind of activity by way of buy back, takeovers, stake sale, private
placements and substantial acquisitions at a high premium. This seems to be a direct
refutation of the existence of efficient markets. If the activities in financial markets
were isolated cases, one could have considered these as exceptions and relied on the
much-supported efficient market hypothesis. The number and value of transactions in
financial markets around the world are so huge that no one can simply dub them as
irrational investors and ignore their activity. Ironically, if the markets were truly
efficient, no one would engage in trading and investment activity. If a large number of
investors do not engage in continuous activity of buying and selling, markets cannot
become efficient in the true sense. While a number of studies have asserted that
markets are efficient, the market activity has induced the researchers and analysts to
test the existence of such markets. This has resulted in a large number of studies
questioning the validity of the EMH. These studies have highlighted different
components of information that are not swiftly incorporated into the prices. Studies
have highlighted the P/E effect, small firm effect, month/week/day effect and delay in
incorporating information. A brief review of studies, which have supported and
repudiated the existence of EMH in the semi-strong form, is presented below.
In their seminal study of stock price reaction to stock splits, Fama et al. (1969) found
that there was considerable market reaction prior to the stock split announcement and
the cumulative abnormal returns tapered off after the event-day. They concluded that
the market is efficient in the semi-strong form. May (1971), Brown and Kennely (1972)
and Jordan (1973) studied the behaviour of security prices by taking the quarterly
earnings as the event and found that the results were consistent with the semi-strong
form of EMH. Ball and Brown (1968), Beaver (1968) and Beaver et al (1980)
examined the magnitude of price changes surrounding the announcement of a firms
annual earnings. Their results showed that the reaction occurred quickly and, therefore,
the EMH in the semi-strong form holds good. Kormendi and Lipe (1987), and Easton
and Zmijewski (1989) found evidence consistent with stock prices reflecting cross
sectional differences in the time series behaviour of earnings, which support the
existence of efficient markets. Ball and Bartov (1996) reported that investors are aware
of the existence as well as of the signs of serial correlation for all the lags. They found
that all the variables had predicted signs. However, they report that the market
systematically underestimates serial correlation in standardized unexpected earnings.
Akhigbe, Frye and Whyte (2005) test the hypothesis that the passage of the Financial
Services Modernization Act (FSMA) of 1999 has spillover effects cross-nationally,
using a sample of US, non-US transactional (Australian, Canadian, and UK), and
relationship (German, Japanese, Dutch, and Swiss) banks. Their results suggest that the
respective banking markets are efficient in filtering events that are largely countryspecific with only limited implications for other international banks. Kumar Narayan
(2005) examines whether or not stock prices for Australia and New Zealand are
38

characterized by a unit root. He finds that the stock prices of both countries are
nonlinear processes that are characterized by a unit root that is consistent with the
efficient market hypothesis. Some of the studies on the Indian market have also
supported the semi-strong form of EMH. Obaidullah (1992) examined the bonus
issues and showed that the market was capable of reacting to bonus issues. Dixit
(1986) found that dividend was the most important determinant of share prices. Based
on the study of rights issues, Srinivasan (1997) concluded that the market was efficient
in the semi-strong form. Narayana Rao (1994), who examined the share price
responses to some of the corporate financial policy announcements, reported that the
stock market is efficient in the semi-strong form Sehgal and Jhanwar (2008) examine
if there is any short-term persistence in mutual funds performance in the Indian context.
They find no evidence that confirms persistence using monthly data. Using daily data,
they observe that for fund schemes sorted on prior period four-factor abnormal returns,
the winners portfolio does provide gross abnormal returns of 10% per annum on postformation basis. They find that economic feasibility of zero-investment trading
strategies that involve buying past winners and selling past losers is however in doubt.
This is owing to the fact that these strategies generate low gross returns and that the
winners portfolios involve higher investment costs than losers portfolios, thus
eliminating a major portion of extra-normal returns. Their empirical findings are
consistent with the efficient market hypothesis. Whereas the above studies have found
the existence of the efficient market, there are others that contradict this.
Joy et al. (1977) found that the favourable information contained in quarterly earnings
was not reflected in share prices. Basu (1977) tested the predictive content of priceearnings (P/E) multiples and concluded that the result was a contradiction of semistrong form of EMH. Charest (1978) found no evidence for the NYSE being efficient in
interpreting selected cash dividend change information during 1947-1967. This is based
on his finding that a systematic trader in dividend changing stocks would have earned
significant abnormal returns. Jensen (1978) and Joy and Jones (1979) reported that the
semi-strong form of EMH does not hold well. Watts (1978), Rendleman et al. (1982),
Foster et al. (1984), Bernard and Thomas (1989, 1990), Freeman and Tse (1989),
Mendenhall (1991) and Bartov (1992) found statistically significant abnormal returns
after quarterly earnings announcements. According to Brown (1979) stock markets
failed to adjust instantaneously to the new earnings per share (EPS) information. The
results of Poterba and Summers (1988) and Ou and Penman (1989a, b), are
inconsistent with the semi-strong form of EMH. Bajaj and Vijh (1995) found that all
dividend announcements without any ex-post selection criteria are accompanied by
positive average excess returns. They also found that positive average excess returns
increase as firm size and stock prices decrease. Cuthbertson et al. (1997) rejected the
existence of efficient market based on a study of the behavior of the UK stock market
under the null hypothesis that the expected returns are constant. Porta et al. (1997)
found evidence that is inconsistent with the risk-based explanation for return
differential. They reported that post-formation earnings announcement returns were
39

substantially higher for value stocks than for glamour stocks. This finding goes against
the semi-strong form of EMH.
Rangan and Sloan (1998) reported that earnings expectations embedded in stock prices
systematically underestimate the time series properties resulting from quarterly
reporting requirements. Hughen and Wohar (2006) show that in seeming contradiction
of the efficient markets hypothesis, closed-end fund shares typically trade at discounts
to their portfolio values. They find that about half of these discounts are nonstationary.
They apply a methodology to test for structural breaks in the mean discounts. They
report that virtually all have structural breaks, and their findings contradict previous
studies that indicate closed-end fund discounts revert to a long-term mean value and
structural breaks in mean discounts do not occur together and therefore, does not find
support for a common factor causing these breaks. Studies on the Indian market in this
area have cast doubt on the existence of the EMH.
Obaidullah (1990) examined the market reaction to half yearly earnings announcements
and found that the semi-strong form of EMH could not be accepted. Barua and
Raghunathan (1990), Sundaram (1991) and Obaidullah (1991) cast doubt on the
consistency of the observed price-earnings ratios with fundamental factors like
dividend growth and pay-out-ratios. Chaturvedi (2000a) found that low P/E stocks
outperformed the high P/E ones and concluded that the market is inefficient.
Chaturvedi (2000b) studied the behaviour of stock returns surrounding the
announcement of half yearly earnings. His results showed that abnormal returns were
present both during the pre and post-earnings announcement periods. Mohanty (2002)
found that companies which announced buyback yielded excess returns even three
months after the announcement dates. This casts doubt on the existence of the semistrong form of EMH. However, he attributes the excess returns to high premium
offered on buy backs. Mallikarjunappa (2004) found that Indian stock prices take time
to react to the quarterly earnings and therefore, conclude that the market is not efficient
in semi-strong form.
Iqbal and Mallikarjunappa (2007, 2008) report that market offers opportunity to earn
abnormal returns on cumulative basis after the quarterly earnings announcement and
therefore conclude that Indian market is not efficient in the semi-strong form. As stated
earlier the studies which have investigated the semi-strong form of market efficiency
have come to different conclusions. While some have supported the existence of the
EMH in the semi-strong form, some have found that the markets are not efficient in
incorporating the value-changing information. In the light of the above inconclusive
evidence for semi-strong form of EMH, this paper investigates whether the Indian
market is efficient in absorbing dividend contents, one of the value-changing
information.
Therefore, this study is conducted with the following objectives: (a) to
empirically test whether the semi-strong form of EMH holds in the Indian stock market,
and (b) to test how the share prices in the Indian market react to dividend
announcements.
40

SAMPLE, DATA AND METHODOLOGY
Sample: The companies selected for this study are those which form part of the Stock
Exchange, Mumbai (the BSE), index consisting of 200 companies which are called
BSE-200 index. Since the objective of the study is to study how fast the valuechanging information contents of the dividends are incorporated into the security
prices, only those companies which have declared dividends, both interim and final,
during the year 2002 have been selected. The search for dividend declaration dates in
the BSE and NSE websites resulted in the selection of 149 companies. There were 170
dividend declarations from these companies in the year 2002.
Data: The data on dividend declaration were obtained from the BSE websites, NSE
website and the Centre for Monitoring Indian Economy (CMIE). The day of board
meeting to announce the dividend is taken as event-day i.e., the day of arrival of
information to the market. The daily closing prices of the selected companies and the
BSE-200 (the market) are taken from the Centre for Monitoring Indian Economy
(CMIE) data base. The daily price data from 1-1-1998 up to four months after the
financial year ending (the year 2002) are taken for calculating the alpha and beta of the
market model.
Methodology: Event study methodology is used to assess the average returns (AR),
average abnormal returns (AAR) and cumulative average abnormal returns (CAAR)
around the dividend announcement day (the event-day). Average abnormal returns and
CAAR were computed for 60 days surrounding (29 days before and 30 days after) the
event-day. The event-day is defined as day zero, twenty nine and thirty trading days
before and after the event-day is designated as days -29 to -1 and 1 to 30 respectively.
To examine the stock price reactions to dividends, expected returns, ARs, AARs and
CAARs are computed. The returns of each security are isolated into those returns which
can be attributed to market movement and those which cannot. Transaction costs are
ignored in this study as they are not going to make significant impact on the results.
The following market model is used:
E (Rit) = i +i Rmt + eit, for i = 1,...N. where E (Rit) = Expected return on security i
during time period t, i = Intercept of a straight line or alpha coefficient of ith
security, i= Slope of a straight line or beta coefficient of ith security, Rmt = Expected
return on index (BSE-200 in this paper) during period t, and ei = Error term with a
mean zero and a standard deviation which is a constant during time period t. This
term captures the variations of the individual security returns that are not captured by
the market index. The following simplified model of regression was used for
estimating the returns on each security by taking the actual returns on market,
Rmt.:expected Return on each security = E (Rit)= i + i Rmt. The ARs are computed
using the following model: ARit = Rit - E(Rit), where Rit = Actual Returns. The actual
returns are used to study whether or not individual securities have earned abnormal
returns. In order to eliminate the effect of any one or group of securities on the ARs and
CAARs, the ARs are averaged over the number of dividend announcements. The ARs
41

of securities are averaged for each day surrounding the event-day (i.e. -29 to 30 days)
using the following model:
N
ARit
i=1
AARit =
For i = 1 ...170 ; t= -29...0, ...+30,
N
where i = the number of dividend announcements taken in the study, N = total
number of dividend announcements, and t = the days surrounding the event-day.
To know the cumulative effect of AARs on days surrounding the event, these are added
to get the CAARs. The model for CAAR is: CAARt = K AARit t = -29 where k
= -29,...0, ... 30. In order to know whether CAARs significantly differ from zero, t-test
is carried out. The level of significance used was 5% with appropriate number of
degrees of freedom. The values of AARs, CAARs and t are presented in Table 1. A
visual representation of AARs and CAARs can help one to understand the movements
on days surrounding the event-day. These are presented graphically in Figures 1 and 2.
Analysis of the Returns and Discussion on Market Efficiency
The results of this study are given in Table 1 and Figures 1 and 2. The AAR shows the
average deviation of the returns of the ith stock from their normal returns with the
market index. The CAAR is the cumulative deviations of the securities returns from
their normal relationship with the market over the periods surrounding the event-day
(from 29th day to +30th day). This shows the cumulative effects of the residuals of all
stocks. In an efficient market, no one can consistently earn superior returns since the
publicly available value-changing information is incorporated in the security prices
instantaneously. Therefore, AARs can neither be positive nor negative consistently for
a long time either before or after the event-day. However, the AAR can be positive for
some time immediately preceding the event-day if the market expects good news from
the dividend announcement and negative if the market expects bad news. In an efficient
market the AAR should tend to be zero after the event-day. From this, it follows that
the CAARs should level out after the earnings announcement. If it does not, the market
is not efficient in the semi-strong form. Therefore, one can hypothesize that the semistrong form of the EMH can be accepted if the CAAR rises sometime before the eventday and levels out subsequently and the AAR hovers around zero after the event-day.
From this it follows that CAARs cannot be significantly different from zero in an
efficient market.
The values of AAR presented in Table 1 and Figure 1 show that they are fluctuating
yielding both positive and negative returns around the event-day. These are positive on
18 days (62%) before and 20 days (65%) after the event-day. It is negative on 11 days
(38%) before and 11days (35%) after the event-day. During the 60 days selected for
the study, the AARs are positive for 38 days (63%) and negative for 22 days(37%).
This indicates that these returns are positive for more number of days than they are
negative both before and after the event-day. Therefore, the trend indicates that it is
42

possible to earn positive returns on majority of the days surrounding the event-day. The
values of CAARs are calculated in two series. In the first series, the values of AARs
are cumulated separately from day -29 to -1 and day 0 to 30 (shown as CAAR in Table
1). In the second series, AARs are cumulated continuously from day -29 to 30 (shown
as CAAR1 in Table 1). In the first series, the CAARs are negative for four days (14%)
before and eight days (26%) after the event-day. These CAARs are positive on 25 days
(86%) before and 23 days (74%) after the event-day.
The analysis of CAAR1 shows that these values are negative on four days (14%) before
and zero days (0%) after the event-day. These values are positive on 25 days (86%)
before and 31 days (100%) after the event-day. The analysis of cumulative returns like
that of AARs indicate that positive abnormal returns exist both before and after the
event-day, more so in the latter period. This is indicated by the values in Figure 1 and 2
in which the number of values below the X-axis is less than the values above the Xaxis. The CAAR curve in Figure 2 shows that with minor fluctuations, it lies above the
X-axis on majority of the days from day -29 to -14. It starts rising from -13th day on
which the CAARs plots above the X-axis and this trend continuous for all the days
following the -13th day (day -13 to 30). Between day -14 and 0, the CAAR rises with
minor corrections, which indicates that market was expecting good news from
dividend. This trend before the event-day is one of the indicators of efficient market.
However, the CAAR curve does not flatten after the event-day as expected in an
efficient market. After the event-day the CAAR rises, with some corrections in the
process, and the rise is more pronounced from the 24th day onwards. This trend after
the event-day is not consistent with EMH.
The t-test carried out on the CAAR1 indicates that the returns are significantly greater
than zero on 42 of the 60 days (70%). The analysis of the CAAR values at five percent
level of significance show that these fall in the right-tail of the t-distribution on 11 days
(38%) before and 31 days (100%) after the event-day. The values of CAARs do not
fall in the left-tail of the rejection region on any day either before or after the event-day.
The analysis demonstrates that positive CAARs are possible on all days from the eventday onwards. The fact that the t-values do not plot on the left-tail of the rejection
region of the t-distribution further strengthens the evidence that the positive returns
which are significantly greater than zero can be earned but there is no possibility of
negative returns which are significantly less than zero on any day surrounding the
dividend announcements.
The result of t-test combined with that of the analysis of the movement of AARs and
CAARs presented above gives enough evidence to show that dividend content is not
incorporated into the security prices as fast as the EMH envisages. As dividend
announcement is one of the most important and recurring publicly available
information, the analysis in this study has shown that the Indian market is slow in
reflecting this in the security prices. As the Indian market exhibits learning lags in
incorporating value-changing information contained in dividend announcement several
43

trading days after the event-day, which is about one-and-half months, we conclude that
EMH in the semi-strong form cannot be accepted for the Indian market.
Summary and Conclusions
Research on financial market efficiency has received well deserved attention in the
western economies but not in India. While a number of academic studies have
demonstrated that financial markets are efficient in reflecting and incorporating the
value-changing information swiftly, the real activity in the market casts doubt on the
existence of efficient markets. The continued interest in securities market around the
world has attracted the attention of researchers and analysts to understand the market
mechanism and degree to which this market exhibit efficiency. The research in this
area has lead to three distinct forms of market efficiency the weak, the semi-strong
and the strong. This paper has investigated the semi-strong form of market efficiency
by taking the stock price responses to the dividend announcements, publicly available
and recurring information. Those companies which constitute the BSE-200 index and
declared dividend in the year 2002, have been selected for study. Totally 170 divided
announcements by 149 companies have been studied using the event-study
methodology. The values of average abnormal returns (AARs) and the cumulative
average abnormal returns (CAARs) computed and analysed in this study show that
positive abnormal returns persist several days after the dividend announcements by the
companies.
The analysis also shows that the number of days on which positive returns are earned is
more than the number of days on which negative returns are recorded. The trend of
positive returns is more pronounced after the event-day. The positive returns can be
earned even after 30 trading days from the dividend announcement day. The analysis
of the t-test values also shows that the positive CAARs can be earned by buying the
stocks after the dividend announcements. The whole analysis in this study shows that
there is no statistical evidence to accept the semi-strong form of market efficiency in
the Indian market. However the behaviour of the CAAR before the event-day exhibits
some of the features of efficient market which are not sustained after the event-day.
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Table 1: The Values of AARs, CAARs and t surrounding the Dividend
Announcement.
t Value
Days
CAAR
CAAR1
AAR
CAAR1
0.039966
0.039966
0.039966
0.192663
-29
-0.244500
-0.204533
-0.204533
-1.19367
-28
0.078318
-0.126215
-0.126215
-0.6841
-27
0.273874
0.147659
0.147659
0.834798
-26
0.253970
0.401629
0.401629
1.880014
-25
0.057318
0.458947
0.458947
2.252554
-24
-0.086322
0.372625
0.372625
1.812933
-23
-0.057914
0.314710
0.314710
1.526598
-22
0.070892
0.385603
0.385603
1.916665
-21
-0.171022
0.214581
0.214581
1.009073
-20
-19
0.057813
0.272394
0.272394
1.462432
-0.116874
0.155520
0.155520
0.764321
-18
-0.028246
0.127274
0.127274
0.608725
-17
-0.156814
-0.029540
-0.029540
-0.14599
-16
0.202928
0.173388
0.173388
0.677805
-15
-0.269000
-0.095612
-0.095612
-0.24835
-14
0.142637
0.047025
0.047025
0.281722
-13
-0.016053
0.030972
0.030972
0.144851
-12
47

-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Before Ve
After Ve
Before +Ve
0.269060
0.383935
0.165204
0.163076
-0.052029
-0.067823
0.275326
0.336986
0.011373
0.069201
0.235667
0.262665
-0.371708
0.007552
-0.267550
0.404770
0.123485
0.281908
0.052375
-0.304654
0.093460
-0.004997
0.337470
-0.504400
0.058875
0.024439
-0.167921
0.049083
-0.108386
-0.148711
0.042802
0.123563
0.178840
-0.124899
-0.280962
0.285456
0.738732
0.095587
0.210461
0.241682
-0.039025
0.017410
0.300032
0.683967
0.849172
1.012248
0.960219
0.892397
1.167723
1.504709
1.516081
1.585282
1.820949
0.262665
-0.109043
-0.101491
-0.369041
0.035729
0.159214
0.441122
0.493497
0.188843
0.282303
0.277307
0.614777
0.110377
0.169252
0.193691
0.025770
0.074852
-0.033534
-0.182245
-0.139443
-0.015880
0.162961
0.038062
-0.242900
0.042556
0.781288
0.876875
1.087336
1.329018
1.289993
1.307402
0.300032
0.683967
0.849172
1.012248
0.960219
0.892397
1.167723
1.504709
1.516081
1.585282
1.820949
2.083614
1.711906
1.719458
1.451908
1.856678
1.980163
2.262071
2.314446
2.009792
2.103252
2.098255
2.435726
1.931326
1.990201
2.014640
1.846718
1.895801
1.787415
1.638704
1.681506
1.805069
1.983909
1.859011
1.578049
1.863505
2.602237
2.697824
2.908285
3.149967
3.110941
3.128351
11
11
18
4
8
25
4
0
25
48
1.529421
3.610829
3.884273
4.572484
4.284883
4.602292
5.870092
7.124835
6.316589
9.582645
8.774654
8.668191
6.217411
8.501082
6.880181
7.553294
8.906702
11.24869
12.26582
9.476389
8.575009
11.35939
11.46926
9.386383
9.259742
8.744167
9.512936
10.03605
11.29565
7.307568
8.394667
10.51313
9.186941
11.70251
7.729881
7.987225
9.912851
13.8021
16.49784
15.45841
15.81162
12.67638
All Days-RT
All Days-LT
42
0

After +Ve
Before Ve
After Ve
Before +Ve
After +Ve
20
23
31
37.93
35.48
62.07
64.52
13.79
25.81
86.21
74.19
13.79
0.00
86.21
100.00
Before-RT
Before-LT
After-RT
After-LT
All Days-RT
All Days-LT
Before-RT
Before-LT
After-RT
After-LT
11
0
31
0
70.00
0.00
37.93
0.00
100.00
0.00
Notes:
1. CAAR shows the values of cumulative average abnormal returns which are computed separately
for days
-29 to -1 and days 0 to 30. CAAR1show the values of cumulative average abnormal returns
which are
computed for days -29 through 30.
2. Before ve and Before +ve indicate the number of negative and positive values, respectively, in
the respective columns before the event-day. After ve and After +ve indicate the number of
negative and positive values, respectively, from the event-day to day 30, in the respective
columns.
3. The t-test was carried out at a level of significance of 5% with 169 degrees of freedom. The
critical value of t is 1.96. The rejection regions fall on both sides of the t-distribution.
4. All Days-RT and All Days-LT indicate the number of t values that fall in the right (RT) and left
(LT) tail of the rejection region, respectively, when all the 60 values of CAAR1s are considered.
5. Before-RT, Before-LT, After-RT, After-LT indicate the number of t values that fall in the right
(RT) and left tail (LT) of the rejection region when t values which are statistically significant are
counted separately for the period before and after the event-day.
49
Figure 1: The AAR Values surrounding the Event-Day
Average Abnormal Returns (AARs)
1.000000
0.800000
0.600000
0.400000
0.200000
Series1
0.000000
-40
-20
20
-0.200000
-0.400000
-0.600000
Days Surrounding the Event-Day
50
40
Figure 2: The Values of CAAR Surrounding the

Event-Day
Cumulative Average Abnormal

Returns (CAARs)
3.500000
3.000000
2.500000
2.000000
1.500000
1.000000
Series1
0.500000
0.000000
-40
-20
0
20
40
-0.500000
Days surrounding the Event (0 = Event Day)
51
Industrial Organization and Customer Relationship

Management: The Impact on Customer Service Orientation
in B-to-B Markets
Richard Lancioni*, Michael Smith** & Alex Stein***
Despite the widespread adoption of customer relationship management (CRM) systems
by firms operating in business-to-business markets, there is continued management
skepticism concerning the effectiveness of these systems and their association with the
firms overall customer information orientation. The research focuses on these
topics by looking at the relationship of customer relationship management with overall
firm performance in B-to-B settings across a range of traditional business performance
measures. The researchers use an advanced statistical approach to determine the key
variables for activating the model constructs The findings of the research provide
support for the result that a firms customer orientation is indeed associated with
relationships management system implementation in a firm.
Key Words: CRM, B-to-B, Customer Service Orientation
Introduction
The number of implemented customer relationship management (CRM) systems,
generally in the form of IT databases and communications systems, has grown
markedly during the past ten years. These implementations have generally taken the
form of extended sales automation systems and enterprise resource planning (ERP)
systems, in most cases replicating an existing process using modern database and
networking technologies. In a survey conducted in 2004 in the northeastern United
States, 60% of mid-sized companies indicated their intention to initiate or expand their
CRM usage, while only 2% indicated they currently had no plans to implement a CRM
system (Neuborne, 2005). More recently, such shared on-demand Internet services as
NetSuite, RightNow Technologies, Salesforce.com and CRM OnDemand have given
smaller firms an opportunity to develop CRM capabilities at significantly lower capital
outlays (Myron, 2005). The resulting solutions have improved efficiency within the
narrow confines of traditional sales management, providing firms with real-time sales
planning, sales team development, pipeline reporting and project tracking capabilities.
Critics have observed that the implementation of a CRM solution is not sufficient to
create a true learning organization. Rather, organizations need to think across
organizational functions to truly benefit from CRM. This requires thinking across
*
Professor (Marketing), Fox School of Business, Temple University, Philadelphia, USA E-mail:
Lancioni@aol.com
**
Associate Professor, Fox School of Business, Temple University, Philadelphia, USA
***
Assistant Professor (Marketing), Gaucher College, Baltimore, MD, USA
52

departmental boundaries in order to concentrate on adding value to the customer
[there is] the need for marketing to act as an integrating function in coordinating the
organizations interaction with the customer (Wilson, Daniel and McDonald, 2002, p.
194-5). If properly implemented, the organizations CRM system is uniquely well
positioned as a knowledge management tool, able to serve as the value creating
interface between the firms functional units (including those linked by an ERP) and its
customers. However, there is no existing research to support the value of CRM in the
broader context of the organizations customer information orientation, and specifically
in the business-to-business market space.
Along these lines, Day (2000) has proposed that successful customer relationship
strategies are associated with three organizational characteristics: (1) an organizational
relationship orientation, (2) developing and utilizing knowledge of the customer, and
(3) effectively integrating and aligning internal and external processes. Each of these
proposed constructs has a relatively well-developed body of literature: customer
relationship orientation (Wyner, 1999; Simmons and Munch, 1996; Slater and Narver,
1994; Day and Wensley, 1988; Kotler, 1984); customer knowledge orientation
(Shoemaker, 2001; Szulanski and Winter, 2000; Slater and Narver, 1995; Kohli and
Jaworski, 1990); and internal and external organizational alignment (Crotts, Dickson
and Ford, 2005; Bowditch and Buono, 2001; Nadler and Tushman, 1997; Burns and
Stalker, 1961).
The focus of the present research is the operationalization and testing of the Day (2000)
hypothetical construct as it relates to customer knowledge orientation, in the B-to-B
space, and the link between CRM use and firm performance. For the purposes of the
study, customer knowledge orientation will be operationalized as a set of data
collection, data management and information dissemination functions rather than as the
strictly sales support process traditionally associated with CRM solutions.
BACKGROUND
The Integrated CRM System as a Knowledge Resource
According to Lemon, White and Winer (2002), the trend in marketing toward building
relationships with customers continues to grow, and marketers have become
increasingly interested in retaining customers over the long run (p. 1). The large
number of CRM implementations over the past decade can be seen as a contemporary
response to the emerging climate of customer churn, waning brand loyalty and lower
profitability (Agrawal, 2003, p. 151). Furthermore, CRM is central to the task of
making an organization customer-centric [and] is the surest symbol embracing
information technology in business [and] the most certain way to increase value to the
customers and profitability to the practicing organizations (p. 151).
CRM systems run the gamut, from the old sales systematics which organize sales
information and systematize sales processes, to full-blown systems that structure and
53

integrate all sources of the firms customer and market information. Similarly, CRM
may take the form of Salesforce.coms Internet-enabled virtual solution or SAPs
hardware-intensive site networks. However, CRM as a discipline is regularly
conducted in organizations of all sizes, including traditional mom and pop
operations, where customer information is generally maintained in the consciousness
and memory of current managers. In larger organizations, where institutional memory
is fragmented and transitory, CRM has increasingly taken the form of complex IT
systems. Users have a myriad of alternative technology frameworks available to them,
now, to help them identify their specific solution.
Regardless of the technology platform selected by a firm, modern integrated CRMs
typically combine various information sources: account plans, the companys
marketing programs, and competitive and market information. CRMs also have
multiple users, those for whom the database provides continuous value in helping to
formulate selling and buying strategies. These users include the sales team, third- party
suppliers (including service organizations, component and sub-assembly providers),
corporate managers and customers. Figure 1 summarizes the sources of CRM
information and the users of that information.
Figure 1
The Elements of Integrated CRM Solutions

Marketing
Programs:
Account
Plans
Products
Channels
Training
Market &
Competitor
Information
Pricing
Organization
IT Network
CRM Platform: D-base

and Network Solution
Sales
Team
3rd Party
Suppliers
Organization
Management
Customers
An effective CRM system governs the organization's marketing and sales philosophy at all
levels, including policies and processes, front-end customer service, employee training,
marketing program development, and systems and information management. The most
effective CRM systems are integrated end-to-end across marketing, sales, and customer service.
Additionally, they provide generally indirect linkages to key operational activities, including
product development, manufacturing, procurement and human resources.
The firms CRM system should identify factors important to clients, promote a consumeroriented philosophy, use customer-based measures, develop end-to-end customer management
processes to serve customers, provide customer support (including handling complaints), and
track all aspects of sales. In other words the system should create a holistic view of customers'
sales and services information. Superior strategy development and implementation is
achieved through open-minded inquiry, synergistic information distribution, mutually
informed interpretations, and accessible memories. Accessible memory is important
because, as Day (1994) states, market-driven inquiry, distribution, and interpretation will not
have a lasting effect unless what is learned is lodged in the collective memory. Organizations
54

without practical mechanisms to remember what has worked and why will have to repeat their
failures and rediscover their success formulas over and over again (p. 44).
Achrol and Kotler (1999) believe that such learning is best accomplished in the
network organizations [which is a] superior learning organization because it organizes
functional components so that each fits better with its external knowledge
environment (p. 147). The emphasis is on diffusing knowledge through a dynamic
integrated CRM system, not just on collecting customer and market information. The
relationship between the firms knowledge base and its strategy is complex and multidimensional. Zack (1999) states the most important context for guiding knowledge
management is the firms strategy. An organizations strategic context helps to identify
knowledge management initiatives that support its purpose or mission, strengthen its
competitive position, and create shareholder value (p. 128).
Properly organized and applied, information can become the knowledge that defines the
mission, form and strategy of the firm. Achrol (1991) states that with the coming of
the age of information, the generic level of almost any kind of business and its core
business strategy is intertwined with its knowledge environment. In other words, the
value of many firms information is greater than [their] capital assets. He defines
these as knowledgerich environments (p. 79).
Knowledge that is available
throughout the organization for use by key internal and external stakeholders leads to a
more flexible and customer-responsive firm.
Zack (1999) argues that customer information orientation can significantly reduce
competitive lead times. This is because a knowledge advantage can significantly
accelerate product development, infrastructure upgrades and relationship-building with
key entities. Research conducted by Deshpande, Farley and Webster (1993) supports
the view that firms with cultures that are relatively responsive ([to their] market) and
flexible ([act as an] adhocracy) outperform more consensual (clan[nish]) and internally
oriented, bureaucratic (hierarchical) cultures (p. 31). As the repository of the firms
sales history, customer profiles and on-going promotions activities, a comprehensive
and integrated CRM may be a crucial element of the firms marketing strategy.
The Structure and Success Factors of the Dynamic CRM System
A dynamic CRM system is often at the heart of the network organizations knowledge
management network and process. It is the repository of account plans, installed base
information, customer requirements, purchase intentions, and sales leads.
It is
frequently the central touchpoint for customers, field, internal and contract sales
personnel, suppliers and firm management seeking to add input or gain knowledge.
Seybold (2001) defines the process that can result from the proper structuring and
application of CRM information as thinking in terms of customer scenarios (p. 81).
This means giving the customer the tools to make the right purchase decision and
providing the right incentives to select the solutions proffered by the firm. In this
55

sense, an integrated CRM is a customer definition and strategy tool brought down to
the level of the individual customer transaction.
Integrated CRM, however, is more than the tool and symbol of the new relationship
marketing. It is, in fact, an integrated strategy solution intended to maximize synergies
across all of the firms existing programs targeting relevant customer communities. For
example, it [can] more precisely measure the impact of a particular promotion on sales
and profits for the firm and its channel partners (Rigby and Ledingham, 2004, p. 121).
A comprehensive and integrated CRM capability must therefore at minimum store
customer, competitor and general market information; organize the information for
multiple uses; retrieve the information when and where it is needed; and update this
information in real time for key constituencies of the firm. Figure 2 summarizes the
integrated CRM framework.
Figure 2
Major CRM Integration Elements
Customers
Customer
Relationship
Orientation
Customer
Knowledge
Orientation
Sales
Organization
Resellers/
Suppliers
Firm Mgmt.
Internal &
External
Organizational
Alignment
Stakeholders/
Info Providers
Organizational
Characteristics
Adapted from Day (2000)
Achrol and Kotler (1999) observe that the classic hierarchical organization of the
twentieth century is focused on the technologies of production. It is designed to
economize on the bounded rationality of top management and minimize the governance
costs of sequential adaptation to contingencies. But the challenge posed by knowledgerich and dynamic industries is to create organizations that are maximally open to their
environments and can approach a state of more or less continuous adaptation to fluid
environments. This calls for organizations that are focused on processing information
and creating knowledge (Achrol and Kotler, 1999, p. 148). The answer is to develop
continuous information exchanges between the firm and its constituencies, and in
particular the major customer groups that define the dynamic markets so critical to
the survival and growth of the firm.
CRM and Customer Knowledge Orientation
Sun, Li and Zhou (2006) define a primary purpose of CRM systems as adaptive
learning. This is the process of [extracting] hidden predictive information from large
56

databases to identify valuable customers, learn about their preferences, predict future
behaviors, and estimate customer value (p. 83). In this sense, the CRM system is an
integral part of the learning organization as described by Senge et al (1999).
Learning organizations are continually adaptive to their environments, monitoring
external changes and adapting their internal cultures and processes to the changes
surrounding them. These changes are not only in the macro-environments of the firm,
including the social and cultural, macroeconomic, political and regulatory,
technological and competitive realms, but also in the microeconomic environment,
which includes channel partners, suppliers and customer markets. The firms data
warehouse is crucial for identifying new environmental patterns, and data mining is
increasingly becoming standard practice in many firms (Hand, Mannila and Smyth,
2001).
The firms orientation toward this sort of active learning may be differentiated from
its approach to passive learning. Sun, Li and Zhou (2006) define passive learning as
the process of periodically reviewing the firms customer databases to undertake
campaign-centric programs. The resulting snapshots should provide a better
understanding of customers needs and wants and their likely response to the firms
value proposition, but consequent inferences are made in an ad hoc manner. Customer
needs are identified on the basis of their historical purchases and progressive new
product acceptance, which is in essence a retrospective viewpoint.
Firms that undertake active learning tend to approach the process in an entirely
different way. Rather than utilizing a campaign-focused model of identifying
customers with a potential need for the firms next solution, active learner firms seek
to better understand customers needs in their latent form in order to operationalize an
optimal solution in the form of the firms next value proposition (Edwards and Allenby,
2003). In order to serve this purpose, the CRM system must be more than a repository
of transactional information. It must include in-depth account plans, customer survey
results, customers self-reported consumption and applications information, and a
detailed record of the firms interactions with customer personnel (Rust and Verhoef,
2005).
Rather than taking a retrospective view of their customer markets, active learners
utilize their CRM systems for modeling customers self-perceived needs from direct
and trace information stored in the data warehouse. The resulting perceptual map of
customers wants and needs is general in its latency but specific in terms of the
constellation of value proposition ideal characteristics (Moore and Pessemier, 1993).
Sun, Li and Zhou (2006) point out that traditional market segmentation, which is an
example of passive learning, is characterized by a search for heterogeneity. Differences
in the perceived needs of various customer clusters drive the development of a set of
solutions for individual clusters, or groups of customers. By contrast, active learning
organizations seek to find consistencies within individual accounts, providing
57

specifically targeted solutions based on the firms in-depth knowledge of these
customers.
In contrast with the snapshot segmentation approach of passive learning, active
learning involves the creation of a development path for each current and potential
customer. The CRM data warehouse defines this path through a continually evolving
re-definition of the customers specific needs and wants. Shoemaker (2001) defines
this as customer knowledge orientation. CRM systems that promote active learning
and the evolvement of a learning organization may be expected to achieve a better
performance than firms with a passive learning approach. Moreover, given the high
costs associated with CRM implementation, including system development, system
implementation and user training, successful CRM users frequently require these
benefits in order to justify their investment (Marshak, 1999).
Smeds and Alvesalo (2003) point out that the active learning organization is
particularly important in an increasingly global economy in which management is faced
with the development of global business processes.with the dilemma of local versus
global designs, centralization versus decentralization, control versus autonomy (p.
362). Adapting their processes to rapidly changing conditions is therefore crucial to
maintaining competitiveness and a key factor in overall firm performance.
CONCEPTUAL FRAMEWORK AND HYPOTHESES
Conceptual Framework
Based on the Day (2000) hypothetical construct and the literature on customer
communities, we propose that (1) relationship orientation, knowledge orientation and
aligned internal and external resources are related to the use of CRM systems in B-to-B
markets; and (2) CRM implementation is related to the performance of the firm in the
B-to-B market space. This model is shown in Figure 3.
Figure 3
Conceptual Model: CRM Implementation and

Customer Community Effect on Customer Relationships
Customer
Knowledge
Orientation
H1
H2
CRM Use
Firm Performance
..
58

Research Hypotheses
Customer Knowledge Orientation
Knowledge management is the primary function of the CRM system, so it follows that
knowledge orientation is a key characteristic of firms that successfully implement
integrated CRM solutions in B-to-B markets. Kohli and Jaworski (1990) assert that
market intelligence is a broader concept than customers verbalized needs and
preferences in that it includes an analysis of exogenous factors that influence those
needs and preferences (p. 3). Environmental factors, including the state of technology
and the cyclicality of the industry and the overall economy, must also be considered in
evaluating the firms strategic options. Moreover, an integrated CRM must provide
more than customer preference data, since the customer frequently knows only what
s/he has seen or used. Possibilities outside the customers existing conceptual
framework are often difficult if not impossible for him/her to understand, much less
communicate.
The integrated CRM must therefore pick up patterns of use and recurring
product/service/support issues that the customer may overlook or be unable to
effectively communicate. This requires organizational learning, defined by Slater
and Narver (1995) as the development of new knowledge or insights that have the
potential to influence behavior (p. 63). Adaptive learning is the most basic form of
learning [which] occurs within a set of recognized and unrecognized constraints (i.e.,
the learning boundary) that reflect the organizations assumptions about its
environment and itself (p. 63). On the other hand, generative learning occurs when
the organization is willing to question long-held assumptions about its mission,
customers, capabilities, or strategy. This requires a new way of looking at the world
based on an understanding of the systems and the relationships that link key issues and
events (p. 63). This continuous learning process is supported by knowledge
management (Shoemaker, 2001, p. 178).
The degree of a firms customer knowledge management is determined by: (1) the level
of the sales managers understanding of reporting capabilities, and their encouragement
of the use of knowledge management systems by sales personnel; (2) salespersons
information gathering skills, including skills in the areas of (a) data gathering, (b)
business data privacy handling, (c) questioning, and (d) data mining; (3) the degree of
salesperson autonomy in decision making; and, (4) salespersons effectiveness in
customer pre-approach and presentation (Shoemaker 2001).
CRM supports the process of adaptive, or active, learning by helping the sales
organization, management, customers, resellers and suppliers to better understand the
impact of new implementation and use patterns of products and services supplied by
the firm. An effective CRM must facilitate the development of a knowledge orientation
in each of the firms stakeholders. Organizational knowledge orientation means that
(1) only best available practices are copied, (2) everyone works from the same active
59

best practice template, (3) best practices are copied as closely as possible, (4) adopted
practices are tested and adapted only after good results are achieved, and (5) best
practice templates are kept in mind after their adoption by the organization (Szulanski
and Winter, 2000).
H1: The relationship of customer knowledge orientation to CRM use is positive in
B-to-B markets.
Customer Relationship Management and Firm Performance
The final test of an integrated CRM, as for any major capital outlay or operating
expense, is its contribution to the viability and growth of the organization. Key
measures of CRM performance therefore include profitability, account sales and
account gross margins. As Agrawal (2003) points out: The key dimensions of CRM
that were largely ignored in the past are customer loyalty and customer profitability (p.
153). Research shows that an increase in customer loyalty by five percent could
increase profits in telecom by over 50 percent, and a study by ICL for a UK Telco
showed that a ten percent churn in the top ten percent of profitable customers would
reduce profits by more than 25 percent. In presenting their model of customer value,
Gupta, Lehmann and Stewart (2004) observe that Customer retention is one of the
most critical variables that affect customers lifetime profit (p. 12).
Nemati, Barko and Moosa (2003) support the view that CRM has become a key
process in strengthening of customer loyalty customers no longer guarantee their
loyal patronage, and this has resulted in organizations attempting to better understand
them, predict their future needs, and to decrease response times in fulfilling their
demands (p. 74).
H2: The relationship of CRM use to firm performance is positive in B-to-B markets.
Research Methodology
This study employs a multi-method approach, including small group in-depth
interviews of organizational management teams and large sample CRM user and nonuser surveys. The multi-method approach of this research incorporates a range of
sources and data collection strategies to give depth and dimensionality to the research
data.
The group in-depth interviews serve as exploratory research in order to
effectively frame the research problems. The user and non-user surveys provide the
scaled data to test the resulting hypotheses.
Respondent Firm Characteristics
The survey sample was drawn from a broad range of industries with generally high
CRM system development and customer community presence. Although these
industries are at varying levels of sophistication and advancement with regard to CRM
60

technology, each has participants with significant experience with CRM development
and use in B-to-B markets (Yu, 2001).
A further criterion for the selection of representatives from firms in these industries is
the self-identified expertise of respondents concerning CRM usage and performance.
In these industries, community members as well as management are knowledgeable and
well informed concerning current and evolving technologies, new and innovative
applications, value delivery networks, and related topics. In-depth group interviews
were conducted within seven selected firms that volunteered to participate in the study.
See Appendix A for a description of the firms and interviewees participating in the indepth group interviews. These interviews lasted between one and three hours at the
host firms offices and/or over the telephone. Subsequently, e-mail messages were
exchanged with these respondents for the clarification and amplification of their
comments and responses.
The in-depth group interviews were arranged by invitation. These voluntary
participants were requested to provide the necessary access, on a strictly confidential
basis, to company personnel, relevant records and current and historical activities.
Group interview participants were selected based on their expertise as reported by the
host firm. Participants were not compensated; rather, the firm will be provided with a
summary report of the research findings. These interviews were conducted with a
small number of managers (generally between three and five) from each firm.
Whenever possible, participants were selected for a range of organizational functions
and expertise related to the specification, development, implementation and use of
CRM systems in B-to-B settings.
The in-depth interviews were conducted for the purposes of determining whether the
scale items derived from published sources were comprehensive and well understood.
The interview guide that was employed for these discussions (see Exhibit B) was openended and designed to engender discussion to raise key issues for the large-scale user
survey. A consistent set of questions was raised to each group and responses were
recorded in the form of handwritten notes. These in-depth interviews provide a
valuable context for CRM usage and performance across a range of organizations in the
B-to-B setting, as well as providing the basis for a comprehensive set of survey
questions.
Sample Structure
Survey respondents that currently have CRM systems and those that do not currently
have system implementations were sourced from the Vendor Compliance Federation
(VCF), a Division of Trading Partners Collaboration, a not-for-profit organization
dedicated to business-to-business customer relationship development.
The
organizational mission of VCF is to provide educational forums for exploring channel
relationships, including the policies, practices and tools of business contracting. VCF
membership is composed of middle and upper level managers in organizations involved
61

in business-to-business strategy formulation and operations. These are the managers
within the organization who would specify and use CRM systems as well as other
business relationship tools. The membership of VCF represents a wide range of
industries and industry roles. Based on available descriptions, this membership appears
to be highly representative of the general population of CRM users.
The request to the VCF membership yielded 206 usable survey questionnaires from
CRM users and non-users. 107 of these respondents indicated that their organization
does not currently have a CRM system; 99 respondents indicated that their organization
currently has an operational CRM system. Respondents were directed to complete the
survey using an Internet-based instrument. Telephone calls to selected respondents
were made by VCF officers to encourage a high response rate of the membership. In
addition, those who were contacted concerning the survey were asked to pass the URL
to other possible respondents. This snowballing technique was intended to increase
the sample population and to extend the diversity of respondents in order to more
closely reflect the overall population of CRM system users.
For the purposes of the CRM user survey, the VCF was asked to publish the URL for
the Zoomerang Internet survey in various membership publications, including the
quarterly newsletter, and to announce the same at major organization meetings.
Requests for participation were directed to product managers, communications
managers, division managers and general marketing heads, with one respondent (the
highest ranking) selected from each firm. VCF membership corresponds roughly with
the overall CRM user population in terms of the key descriptors: sales volume, number
of employees and industry classification. In consideration for the associations efforts,
the author volunteered to make a presentation of the overall findings of this research.
There is substantial support for the use of key informants within organizations as
reliable sources of organizational and industry information. John and Reve (1982)
report the results [of their research] indicates that key informants from different firms
within channel dyads provided reliable and valid data about the structural form of the
relationship (p. 522). However, Phillips (1981) finds support [for] the contention that
the mono-method single-informant approach to the measurement of organizational
characteristics should be abandoned (p. 411). Instead, she recommends that
researchers should utilize multiple sources and methods in order to corroborate and add
richness to research data. In light of this admonition by Phillips, this study employed a
multiple informant approach in the small group in-depth interviews. The value of key
informants for the questionnaire survey was determined based on the convergence of
multiple respondents from the same organization in the exploratory research. A general
consensus among in-depth group interview participants was observed in the areas of
system description, customer and vendor relationships, CRM benefits and overall
organizational performance. This was the basis for the decision concerning the use of
key informants for conclusive research.
62

All respondents, including those involved in group in-depth interviews or questionnaire
surveys, were offered a brief summary of the final study report as incentive for their
participation. Minimum sample size was determined by the demands of each specified
method and subsequently used analysis technique.
Research Design, Questionnaire and Scale Development
An interview guide for the exploratory small group in-depth interviews, involving
multiple management teams responsible for CRM solutions in a range of organizations
(Appendix B), served as the basis for broad-based conclusive research (survey
questionnaire in Appendix C) concerning the success factors for CRM
implementations. Because validated scales are not available for the defined latent
construct, customer knowledge orientation, it was necessary to develop a range of
questions for pre-testing. These scale items were derived from a search of the existing
literature on the topics of customer knowledge orientation and firm performance.
Several peer reviewed articles have addressed these constructs one dimensionally, and
have published scale items for each dimension.
These questions were subjected to three rounds of questionnaire pre-testing by the
management teams involved in the preliminary in-depth interviews, with the
participation of from three to five experienced managers from each team for each of the
three rounds of revisions. Following each round of reviews, the proposed changes were
presented to the original respondents from each team. At each round the questions
were further refined and new questions were added based on these responses.
Managers were asked to review the resulting questionnaire for (1) ambiguous wording,
(2) double-barreled questions, (3) loaded questions, and (4) questionnaire structural and
visual issues. At each revision, an attempt was made to eliminate biases and to expand
or contract the scope of the questions, as appropriate.
Respondents were asked questions in five major areas: (1) the characteristics of the
organization; (2) the form and extent of the firms CRM implementation; (3) the
perceived success of CRM system implementation with regard to customer retention
and a range of other firm performance criteria; (4) the existence and form of the firms
customer communities; and (5) the relationship of the firm with its customers. Where
appropriate, seven-point Likert-type scales were used (e.g., 1=strongly disagree to
7=strongly agree). Throughout the study, consistent with standard practice (Flora and
Curran 2004), ordinal data has been treated as continuous data in order to facilitate
interpretation. The survey data was subjected to factor analysis to identify any new
factors which should be considered in the study.
Reliability and Validity
Cronbachs alpha was used to evaluate reliability. For the purposes of exploratory
research a Chronbachs alpha of .7 or .8, and sometimes as low as .6, is generally
deemed adequate (Peterson 1994). A review of the literature did not identify existing
63

validated scales directly associated with the latent construct, customer knowledge
orientation. However, several peer reviewed articles have addressed this construct one
dimensionally (as individual scale items rather than as related items) and have
suggested scale items for operationalizing customer knowledge orientation
(Shoemaker, 2001; Szulanski and Winter, 2000; Slater and Narver, 1995; Kohli and
Jaworski, 1990).
This research is reliant on nomological validity to the extent to which predictions from
the accepted network of theory are borne out in the new measures developed in this
study (Bagozzi, 1994). The newly measured constructs "behave" in expected ways in
relation to other well understood constructs, and this contributes to confidence in the
new measures. From the earliest stages of this research, nomological and face validity
were also the basis for selection and testing of the appropriate variables. Nomological
validity is a form of construct validity. It is the degree to which a construct behaves as
it should within a system of related constructs called a nomological set (Bagozzi 1980,
p. 182). Face validity is concerned with how a measure or procedure appears. Does it
seem like a reasonable way to gain the information the researchers are attempting to
obtain? Does it seem well designed? Does it seem as though it will work reliably?
(Fink 1995, p.261)
Furthermore, we rely on face validity, as described by Anastasi (1988): "[Face
validity] is not validity in the technical sense; it refers, not to what the test actually
measures, but to what it appears superficially to measure. Face validity pertains to
whether the test looks valid to the examinees who take it. (p.144).
This research meets these definitions of nomological and face validity. The multimethod approach of this study is intended to ensure face validity insofar as the
measures were repeatedly reviewed by participants in the in-depth group interviews.
These subject matter experts provided indirect input for the development of the scale
items and were also requested to review these items as relevant and comprehensive
measures of the constructs used in the study.
Data analysis proceeded in three stages in order to develop a measurement model and a
confirmatory model. Factor analysis was employed to identify latent variables and to
determine the relationships of individual items to their posited, underlying structures
(Hunter and Gerbing 1982, zsomer, Calantone and Di Benedetto 1997). Principal
factor analysis (PFA or factor analysis) is used to verify the one dimensionality of the
measures. Convergent validity is inferred from the significance of coefficient loadings
and their magnitudes. This method is intended to assess and validate the descriptive
and predictive value of the measurement model of CRM use and customer knowledge
orientation. Item measures that pass the significance test but have a standardized factor
loading of approximately less than 0.6 were eliminated from the model (Nunnally,
1978).
64

To the degree that the one dimensional latent variable identified in the literature is
supported by the results of t-tests and analyses of variance (ANOVA), this research
relied on a convergence of research findings to validate those findings. Differences of
methodology and analytical schema have the effect of reducing the value of this
approach, but it remains one factor in determining convergent validity.
Research Results
Study findings were analyzed using factor analysis to determine the association of the
scale items as a set of latent factors for all respondents and for only CRM users. This
was followed by a set of independent-sample t-tests to determine the association of the
reduced set of independent variables identified in the factor analysis, the scale items
associated with customer knowledge orientation and the dependent variable CRM
use. Analyses of variance (ANOVA) were conducted to determine the relationship of
CRM implementation with firm performance using a set of firm performance
dimensions.
Analysis of Data
Factor analysis was used to verify the one dimensionality of the scale measures derived
through the questionnaire survey. An inference of convergent validity can be based on
the significance of coefficient loadings and their magnitudes as a set of latent
constructs. The factor analysis of all 206 respondents, including both CRM users and
non-users, employing Varimax rotation, of the scaled items yielded four factors, which
may be defined as customer knowledge orientation (Factor 1), customer
relationship orientation (Factor 2), customers community orientation (Factor 3),
and internal and external organizational alignment (Factor 4).
This result is suggestive of H1, The relationship of customer knowledge orientation
to CRM implementation is positive. See Table 1a. Only scale items with significant
loadings are reported; items with loadings approximately below 0.6 have been
eliminated according to common practice (Nunnally 1978).
65

Table 1a
Factor Analysis: CRM Users and Non-Users

Using Varimax Rotation
Factor 1
Factor 2
Info. Orient.
Q8e: The development of detailed account plans is a high priority.

Q8f: Marketing databases are kept up-to-date.
Q8g: Sharing Information with customers is considered important.
Q8h: Important external vendors and service providers are treated as
members of your firms organization.
Q8i: Customers have a significant level of input to the firms marketing
strategy.
Q8j: Managers utilize marketing information from internal databases.
Q8p: There are methods for resolving differences between your firm and its
vendors and service providers.
Q8q: The accuracy of information in the marketing databases is actively
monitored.
Q8r: Performance-based vendor and service provider reward systems are
utilized.
Q9h: Your firms customers are willing to share sensitive operational
information with the firm.
Q10a: Your firms customers regularly keep in contact with one another.
Q10b: Your firms customers share purchase (price, availability, retailer, etc.)
information with other customers.
Q10c: Your firms customers advise each other concerning the use of your
firms products.
Factor 3
Factor 4
Cust. Comm. Int. & Ext.
Cust. Orient. Orientation Alignment
.187
.745
.397
.872
.269
.624
.140
.162
.133
-.047
.232
.243
.238
-.044
.591
.190
.166
.784
.145
.321
.743
.348
.315
-.038
.412
.075
-.095
.773
.723
.445
.081
.348
.660
.182
.121
.038
.
.117
.029
..002
-.199
.833
.613
.025
.138
-.082
.887
.093
-.175
.107
.826
.128
.203
Factor analysis is generally used to identify latent variables which contribute to the
common variance of the set of measured variables, while excluding variable-specific
(unique) variance. Factors are the dimensions, or latent variables, identified with
clusters of variables, as computed using factor analysis. Factors represent the common
variance of variables, excluding unique variance, and factor analysis is thus a
correlation-focused approach seeking to reproduce the intercorrelation among the
variables (Bryant and Yarnold 1995, p. 119). The purpose of factor analysis is to
discover simple patterns in the pattern of relationships among the variables. In
particular, it is applied for discovering if the observed variables can be explained
largely or entirely in terms of a much smaller number of variables called factors. A
typical factor analysis suggests answers to four major questions: How many different
factors are needed to explain the pattern of relationships among these variables? What
is the nature of those factors? How well do the hypothesized factors explain the
observed data? How much purely random or unique variance does each observed
variable include? (Gorsuch, 1983, p. 238).
It is necessary to infer the existence of each factor from the covariance of the associated
operationalized variables because the factors are not observable as such. The results of
the factor analysis support the conclusion that the latent constructs customer
knowledge orientation, has nomological and face validity as an independent construct,
and is therefore one of four separate factors in the factor analysis.
This is further reflected in the results of a factor analysis, employing Varimax rotation,
of the data from only those 99 respondents indicating current CRM use. The analysis
of the proposed items yielded four factors, including customer knowledge orientation
(Factor 1), customer relationship orientation, (Factor 2), customers community
orientation (Factor 3), and internal and external organizational alignment (Factor 4).
Factors 1, 2, and 4 are consistent with Days (1994) proposed hypothetical construct.
66

This is suggestive of H1, The relationship of knowledge orientation to CRM
implementation is positive. See Table 1b.
Table 1b
Factor Analysis: CRM Users Only

Using Varimax Rotation
Factor 1
Factor 2
Factor 3
Factor 4
Q8e: The development of detailed account plans is a high priority.

Q8f: Marketing databases are kept up-to-date.
.225
.753
.850
.431
-.092
.349
.324
.301
Q8h: Important external vendors and service providers are treated as

members of your firms organization.
Q8i: Customers have a significant level of input to the firms marketing
strategy.
Q8j: Managers utilize marketing information from internal databases.
-.127
-.085
-.063
.682
.201
.651
.041
.127
.684
.232
.217
.741
-.096
.258
-.132
.019
Q8l:Customer satisfaction is a high priority.

Q8o: Customer retention is a High Priority.
Q8p: There are methods for resolving differences between your firm and its
vendors and service providers.
Q8q: The accuracy of information in the marketing databases is actively
monitored.
Q8r: Performance-based vendor and service provider reward systems are
utilized.
Q9b: Your firms customers are an important source of planning information
for your firm.
Q10a: Your firms customers regularly keep in contact with one another.
Q10b: Your firms customers share purchase (price, availability, retailer, etc.)
information with other customers.
Q10c: Your firms customers advise each other concerning the use of your
firms products.
.241
.662
.278
.091
.751
.282
.658
-.097
.426
-.052
.232
.248
.668
.269
.074
.236
.327
.653
.297
.194
.231
.147
-.101
-.039
.785.
868
.034
.038
-.104
.168
.775
.188
Customer Knowledge Orientation

Independent-samples t-tests of the variables associated with customer knowledge
orientation supports the finding of a relationship with CRM use. See Table 2. A
significant relationship between CRM use was found in the case of question 8f,
marketing databases are kept up-to-date, 8j, managers utilize market information
from internal databases, 8q, the accuracy of information in the marketing databases is
actively monitored and 8r, performance-based vendor and service provider reward
systems are utilized.
This provides supports for H1, the relationship of customer knowledge orientation to
CRM implementation is positive in B-to-B markets.
67

Table 2
T-test of Customer Knowledge Orientation Variables

N
Q8f: Marketing databases are kept

up-to-date.
CRM No
CRM Yes
Q8j: Managers utilize market
information from internal databases.
CRM No
CRM Yes
Q8q: The accuracy of information in
the marketing databases is actively
monitored.
CRM No
CRM Yes
Q8r: Performance-based vendor and
service provider reward systems are
utilized.
CRM No
CRM Yes
Mean
S.D
T-stat
Sig. (2-tailed)
101
95
3.67
4.72
1.448
5.39
.000
104
97
3.85
4.77
1.363
5.11
.000
103
97
3.73
4.73
1.497
5.02
.000
75
76
3.39
3.89
1.638
1.92
.056
This is reflected in the remarks of managers interviewed concerning their CRM

systems. Ours is a very complex and geographically challenging business. We have to
reach hundreds of thousands of physicians and thousands of healthcare service
providers and keep consistent records of their activities, inquiries and intentions. The
CRM system data library is the repository for all that we rely on that information to
make our decisions (Director of Marketing for a mid-sized pharmaceuticals
manufacturer).
Moreover, a number of those interviewed concerning the organizational and market
characteristics associated with successful CRM implementation identified customer
knowledge orientation as critical for success. Our CRM system is one of many tools
we employ to better understand our customer needs and purchasing behavior. I cant
tell you the specific role of our CRM system, but it is significant in tying it all together
(Vice President of Distribution for a major electronics components distributor). Our
organization collects an enormous amount of information concerning our customers.
Thats what we do we analyze our customers buying patterns, expenditure levels
and their stated interests (Director of Marketing for a multi-media consumer
merchandiser). Our customers feel that they have a close relationship with us. They
rely on us for solutions and [our customers] give us as much help in developing the
right solutions as they can (Director of Sales for an information systems developer).
CRM Use and Firm Performance
Independent-samples t-test of the year-over-year change in firm performance and CRM
use supports a relationship between CRM use and firm performance, as defined by
survey respondent reported year-over-year firm performance improvement in overall
profitability, sales force productivity, customer retention, average account sales and
average account gross margins. See Table 3. Therefore, H4, The relationship of
CRM use to firm performance is positive in B-to-B markets is supported.
68

Table 3
T-test of Firm Performance Variables with CRM Use

N
Q6a: Overall profitability?

CRM No
CRM Yes
Q6b: Sales force productivity?
CRM No
CRM Yes
Q6c: Customer retention?
CRM No
CRM Yes
Q6d: Average account sales?
CRM No
CRM Yes
Q6e: Average account gross
margins?
CRM No
CRM Yes
Mean
S.D.
T-stat
Sig. (2-tailed)
46
95
4.15
4.49
.851
2.28
.024
45
92
3.98
4.48
.881
3.23
.002
45
92
3.67
1.009
4.40
4.25
.000
45
93
4.02
4.41
.880
2.46
.015
46
95
3.87
4.41
.892
3.51
.001
.
The relationship of CRM systems and organizational profitability was mentioned by
managers in group interviews. We could never be as profitable without our customer
databases We continuously upgrade our customer information systems because its
what drives our business (Director of Marketing for a multi-media consumer
merchandiser). Our CRM system is the heart of our sales and marketing activities
We make all of our product line and customer care decisions after analyzing our CRM
data We would be a lot less successful without it (Vice President of Distribution for
a major electronics components distributor).
This finding is further confirmed by the an analysis of variance (ANOVA) of the mean
value of the scale items associated with customer knowledge orientation, which is found to
be significant (f stat = 2.97; deg. of freedom = 15; sig. < .001)
Firm Performance and CRM Implementation Level
A significant relationship has been established for CRM use and the year-over-year change
in firm performance in terms of overall profitability, sales force productivity, customer
retention, average account sales and average account gross margins. This is further
confirmed by the reported association of the latent construct, customer knowledge
orientation, with the mean of the year-over-year organizational performance variables,
questions 6a, overall profitability? 6b, sales force productivity? 6c, customer
retention? 6d, average account sales? and 6e, average account gross margins?
An extension of these analyses is the determination of whether the level of CRM
implementation is associated with the firms performance. To answer this question, an
analysis of variance (ANOVA) was performed for the full set of scale items posited to have
an association with customer knowledge orientation, along with the set of scaled CRM
performance variables.
69

The results indicate a limited relationship between these organizational performance
variables and the level of CRM integration, including these classifications, from lowest to
highest level of system implementation: Level 1: we have a system which performs
primarily as a sales support system; Level 2: we have a CRM system which serves as an
integrated account planning and account management system; and Level 3: we have a
system which serves as an integrated account planning and account management system
and as a management reporting system. See Table 4.
Table 4
ANOVA of Firm Performance by CRM Level

TotalDeg. of
Freedom
S.D.
F-stat
Sig.
Q6a: Overall profitability?
93
.851
3.19
.046
Q6d: Average account sales?
91
.880
3.93
.023
Q6e: Average account gross margins?
93
.892
2.69
.073
Q8h: Important external vendors and service

providers are treated as members of your
firms organization.
92
1.449
2.49
.089
The results were significant for questions 6a, overall profitability? 6d, average account
sales? 6e, average account gross margins? and 8h, important external vendors and
service providers are treated as members of the firms organization.
Higher level
implementations of CRM systems, those with greater integration with the firms strategic
and resource planning functions, are therefore associated with the firms sales productivity
and profitability.
DISCUSSION OF MANAGERIAL AND RESEARCH IMPLICATIONS
The present study has proposed a set of organizational characteristics, as represented by a
set of customer information orientation scale items, associated with the implementation
of CRM systems in business-to-business settings. The preliminary findings are suggestive
and do not identify clearly causal relationships of the construct, customer knowledge
orientation, with the organizational use of CRM systems. A number of factors make a
clear determination of causation problematic, including the heterogeneity of firm
organizations (and their CRM implementations) and the concomitant use of CRM and
related resources for multiple organizational applications.
Internal and external
organizational environmental conditions further complicate a determination of causality in
the factors leading to CRM use, as well as the resulting association of CRM with overall
firm performance.
70

As the in-depth exploratory interviews suggest, the concept of a CRM system in B-to-B
applications may be interpreted differently by both systems users and non-users. To some
executives, the CRM system is a logical extension of the sales management function, i.e., a
better way to manage the sales organization. To other executives, CRM connotes a
strategic marketing function, which is focused on the development of in-depth account
plans and a team selling approach. To still others, CRM has achieved a high level of
integration in the firms enterprise resource planning (ERP), or highest level, information
management platform. The Salesforce.com and Siebel applications are often identified
with the first conception of CRM, while the highly integrated IBM and SAP applications
may be thought of as embodying the latter conception of CRM.
The results of this research provide qualified support for a finding of a relationship of the
latent construct customer knowledge orientation with CRM use in B-to-B markets.
Although still vague, this construct, as operationalized in this and other studies, is
identified in the proposed model as a characteristic of the organization. A contribution of
this study is in presenting this organizational characteristic as an identifiable, albeit less
than perfectly measurable, construct.
Study results clearly demonstrate that the
operational variables may be applied jointly as predictors of CRM use.
As many of the in-depth group interviewees made clear, the firms customer-centeredness
is closely associated with the breadth, depth and quality of customer information sought
and collected by the firm. A number of respondents pointed out that firms are increasingly
focused on understanding their business customers needs and wants through empirical and
inferential means. The CRM system may be viewed as an amorphous data management
tool that serves the customer information requirements of a wide range of managers across
a myriad of value-added functions. This is supported by the more than 60% of survey
respondents who identified their system as serving more than a purely sales management
function.
The multiple applications of CRM make it difficult to narrowly define organizational
characteristics associated with CRM implementations. These implementations are highly
customized to the organizational and even departmental levels. Therefore, the perceived
functionality of one system may appear on paper in terms of specifications to mirror
another system, but may, in fact, represent a completely different solution for the
organization. Data warehouses are increasingly complex and multifaceted, providing
applications undreamed of by their developers. This data mining takes on the
characteristics of the client users, and provides fuzzy boundaries for individual
applications.
There is no ambiguity concerning the potential value of a CRM system to the respondent
population. There is clear support for the contention that CRM use, in B-to-B markets, is
associated with firm performance improvement in overall profitability, sales force
productivity, customer retention, average account sales and average account gross margins.
Since these are the criteria most frequently emphasized by in-depth group interview
participants, the survey results clearly present the value of CRM to the firm. Furthermore,
71

this research clearly indicates the benefits of higher order CRM systems, those with
integrated account planning, account management and management reporting capabilities.
Firms employing higher order CRM capabilities had a statistically significant performance
improvement over users with less evolved systems.
RESEARCH LIMITATIONS AND FUTURE RESEARCH
The present research utilizes both in-depth interviews and a large sample questionnaire
survey to improve understanding of CRM and its association with the firms customer
information orientation. As is the case with most empirical research, the present survey
research has several limitations associated with the identification of latent constructs, the
operationalization of those constructs and the collection of survey data for testing those
operationalized constructs. These limitations have implications for future research.
To develop an appropriate model, elements of the hypothetical concstruct proposed by
Day (2000) were operationalized using scale items derived from existing literature.
The selection of the items and the development of measurement scales had significant
bearing on the course of the research. Naturally, there is a significant degree of
subjectivity in this selection and development process, although an effort was made to
limit bias to the extent possible.
The subject matter of this research is complex and fraught with misconceptions among
CRM suppliers and their clients. A major objective of this research was therefore to
disentangle these complexities and to present a simplified model of the organizational
and customer community characteristics associated with B-to-B CRM use and related
outcomes.
The research reported here uses self-reported measures for independent as well as
dependent variables from individuals who represent firms. There are multiple biases
that may have been introduced despite efforts to draw a representative sample from an
informed and committed respondent population. The use of a structured survey
questionnaire to collect reconstructive information concerning the decisions and actions
associated with the implementation and use of a CRM system has significant
limitations. A necessarily rigid response format, based largely on scaled responses,
limits the specificity of respondent input. Moreover, a limited set of possible responses
may have inadvertently presented a more time-compressed set of actions and outcomes
than respondents intended. This may introduce some biases to the research.
One way that future research may avoid some resulting biases is to undertake
longitudinal studies with a sufficiently large and representative B-to-B sample
population. By staggering the collection of data related to independent and dependent
variables, it may be possible to more effectively link user and non-user behaviors with
organizational outcomes (Duchon and Kaplan, 1988).
72

Related to this time-lapse limitation, the present survey study utilizes a cross sectional
design, which limits the extent to which causality can be inferred. The research
employed a targeted voluntary sampling procedure to conduct the survey. This may be
a limitation depending on how well the sample approximated the population of current
users and non-users of CRM. A possible related limitation is the sourcing of
respondents from a single organization, the Vendor Compliance Federation, a voluntary
membership organization composed of representatives from firms with business-tobusiness relationships. VCF membership corresponds roughly with the overall B-to-B
CRM user population in terms of the key descriptors sales volume, number of
employees and industry classification, but there is no assurance of the external validity
of the respondent base. Furthermore, the snowballing technique used for respondent
recruitment may have introduced a sampling bias that is difficult to detect in a
confidential online interview context. Therefore, the external validity of the results of
the present research will need to be tested in future research.
Every effort was made to determine that the demographic characteristics of the sample
used in this study are the same as the current base of B-to-B CRM systems users.
Since no previous studies of this population could be located, it isnt possible to
approximate the extent of sampling bias, and this remains a concern.
A possible future test of the validity of the reported research is the study of well defined
subsets of users, for example by industry or by system type, and of business-to-business
CRM application contexts, for example by geographic coverage or market type, in
order to identify boundary conditions, constraints and exceptions to the model. The use
of different environmental contexts will aid in accounting more fully for the effect of
environment on the relationships presented in the model.
Although an effort was made in the exploratory phase of this research to determine
convergent validity both within and between organizations, sampling and time
limitations made it difficult to rule out these sources of bias. The application of other
research techniques to the questions addressed by the current research would be helpful
in identifying any biases that may be present in the results reported here.
To aid in data collection from a diverse group of respondents representing a range of
industries, the author adopted a set of standard metrics of firm performance, including
overall profitability, sales force productivity, customer retention, average account sales
and average account gross margins. These measures, while having the virtues of
common usage and standard meaning, may not adequately capture the nuances of
organizational performance in specific firms or industries.
In order to address these various shortcomings, future research should employ varied
CRM and organizational contexts and research designs to determine whether the model
provides a satisfactory, consistent explanation for the determinants of business-tobusiness CRM use and related performance outcomes. Additional research would also
help to determine the conditions under which the various performance factors may
73

vary, and the extent to which these factors are independent of other organizational,
industry and other environmental factors. A replication of the present study using other
sample populations, definitions of CRM and organizational and performance criteria
will serve to improve the external validity of the findings, and to validate the robustness
of these relationships across different B-to-B CRM implementations and usage
contexts.
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ISSN (Online): 0976-0148

ISSN (Print): 0976-013X

Journal of Management & Public Policy

Editorial Advisory Panel

Mansoor Al-A'ali, University of Bahrain, Bahrain

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy (JMPP) is a biannual peer-reviewed

Management Development Research Foundation, 2010

Published by Chairman, Management Development Research Foundation, 132, DDA

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Industrial Organization and Customer Relationship Management: The Impact on Customer

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

The China Code: An Analysis of Chinas National Social

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

ORourke, D., 2003. Outsourcing regulation: Analyzing Non-governmental Systems

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Affective Commitment as a Mediator between Psychological

Assistant Professor, Management Development Institute, Gurgaon, India Email: sbiswas@mdi.ac.in

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

The respondents involved in the study were executives/managerial cadre employees

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Values in parentheses are reliability indices (Cronbachs alpha)

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Standardized C.R. Remarks

Affective commitment job .53*

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

DISCUSSION AND CONCLUSION

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Determinants of Organizational Citizenship Behaviour: A

Lecturer, Apeejay School of Management, New Delhi, India

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Altruism, helping other members of the organization in their tasks (e.g.

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Courtesy, preventing problems deriving from the work relationship (e.g.

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Barrick, M. R., Parks, L. & Mount, M. K. (2005). Self-monitoring as a moderator of

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Kanungo, R.N. (1982). "Measurement of job and work involvement", Journal of

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

Roethlisberger, F. J. & Dickson, W. (1939). Management and the worker: An account

Van Dyne, L., Graham, J. W. & Dienesch, R. M. (1994). Organizational citizenship

Journal of Management & Public Policy, Vol. 1, No. 2 June 2010

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