Source: More publications on: www.cvcentrum.academia.edu ...

Source: Binczycki B., Entrepreneurial Approach to Management of Public Organizations [in:] Managing Organizations in the Information Society, ed. A. Stabryła, K. Woźniak, Mfiles.pl, Cracow 2014, ISBN 978-83-935104-3-6, pp. 11-17.

More publications on: www.cvcentrum.academia.edu/BernardBinczycki www.researchgate.net/profile/Bernard_Binczycki2/publications

Managing Organizations in the Information Society Edited by Adam Stabryła and Krzysztof Woźniak

Mfiles.pl Encyklopedia Zarządzania

Managing Organizations in the Information Society

Managing Organizations in the Information Society Edited by Adam Stabryła and Krzysztof Woźniak

Kraków 2014

EDITORS Prof. dr hab. Adam Stabryła Dr Krzysztof Woźniak REVIEWERS Prof. dr hab. Bogdan Nogalski Prof. dr hab. Szymon Cyfert Prof. UJK dr hab. Jarosław Karpacz Prof. UJK dr hab. Anna Wójcik-Karpacz TECHNICAL EDITOR Mariusz Sołtysik PUBLISHER Mfiles.pl © Copyright by Mfiles.pl, 2014 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without the prior permission of the publisher. Cover photo: Sanja Gjenero, freeimages.com E-mail: [email protected] WWW: http://wydawnictwo.mfiles.pl ISBN 978-83-935104-3-6

Table of contents Introduction........................................................................................................ 9 Bernard Bińczycki 1. Entrepreneurial approach to management of public organizations .......11 1.1. Changes in public sector management...................................................11 1.2. Contemporary changes in the management of public organizations .....11 1.3. The role of human resources management in public management....... 14 1.4. Conclusion ............................................................................................ 16 1.5. References............................................................................................. 17 Magdalena Dolata, Andrzej Stańda 2. The specificity of manager in project management ................................. 19 2.1. Role of project management in contemporary organizations ............... 19 2.2. Starting point – systematization of notions of projects and projects management .................................................................................................. 19 2.3. Multiplicity of project manager’s roles ................................................ 27 2.4. Improving management processes ....................................................... 30 2.5. References............................................................................................. 30 Agnieszka Dziubińska 3. Creating strategies in the context of emerging markets.......................... 33 3.1. Challenges for strategic management process ...................................... 33 3.2. Definition of emerging markets ........................................................... 34 3.3. Theoretical foundations ........................................................................ 35 3.4. Description of the model....................................................................... 36 3.5. Conclusion ............................................................................................ 40 3.6. References............................................................................................. 41 Czesław Mesjasz 4. The Meaning of Risk in Negotiation.......................................................... 43 4.1. Theoretical considerations .................................................................... 43 4.2. Definitions of risk ................................................................................. 43 4.3. Risk in negotiation: Conceptual framework and basic ideas................ 45 4.4. Distribution of information in negotiation and risk .............................. 48 4.5. Attitudes towards risk ........................................................................... 51 4.6. Risk sharing in negotiation .................................................................. 52 4.7. Agency, contracts and risk .................................................................... 54 4.8. Risk communication and risk negotiation ........................................... 56

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4.9. Conclusion ............................................................................................ 58 4.10. References .......................................................................................... 58 Gabriela Roszyk-Kowalska, Andrzej Stańda 5. The issue of framework qualifications of management staff................... 61 5.1. Role of qualifications framework ......................................................... 61 5.2. Classic approach to managerial qualifications...................................... 61 5.3. Qualifications framework in higher education...................................... 69 5.4. Qualifications as understood by European and Polish Qualifications Framework (EQF, PQF) ................................................................................ 70 5.5. University – a place of building qualifications ..................................... 72 5.6. Conclusion ............................................................................................ 73 5.7. References............................................................................................. 73 Adam Stabryła 6. Decision analysis methods in designing improvements in a company’s organization and functioning .......................................................................... 77 6.1. Introductory remarks............................................................................. 77 6.2. Standard discount methods .................................................................. 77 6.3. The role of the coordination account in project portfolio management . 79 6.4. The procedure for applying the coordination account .......................... 81 6.5. The standardization quotient method in taking design decisions ......... 83 6.6. An analysis of functionality as a tool for project assessment ............... 89 6.7. Project implementation effectiveness indicators .................................. 93 6.8. References............................................................................................. 94 Monika Szyda 7. Implementing e-business into maritime business based on maritime e-commerce ....................................................................................................... 95 7.1. E-commerce role in business ................................................................ 95 7.2. The genesis of maritime e-commerce................................................... 95 7.3. Maritime e-commerce in B2B relations ............................................... 96 7.4. Maritime e-commerce in B2C relations ............................................... 97 7.5. Conclusion ............................................................................................ 99 7.6. References............................................................................................. 99 Małgorzata Tyrańska, Tomasz Małkus 8. The process of designing organizational systems – results of empirical research ........................................................................................................... 101 8.1. Introduction to design problems ......................................................... 101 8.2. The overview of approaches to the problem of design....................... 101 8.3. Research assumptions......................................................................... 106 8.4. Characteristics of surveyed companies ............................................... 107 8.5. Attitudes to the process of design of companies’ organizational systems – research results......................................................................................... 108 8.6. Conclusion ...........................................................................................114 8.7. References............................................................................................115

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Jolanta Walas-Trębacz 9. Customer’s role in creating the value chain – research results .............117 9.1. Added value creation process ..............................................................117 9.2. The enterprise value chain from the customer’s perspective...............118 9.3. Identification of customers’ needs and expectations of the enterprise as a key stage of forming an effective value chain ..........................................119 9.4. The scope of researches and the characteristics of entities................. 121 9.5. Parameters of the product offer the highest rated by customers......... 123 9.6. Customer’s role in the improvement of internal structure of the value chain............................................................................................................ 124 9.7. Customers’ opinions survey – frequency of research and way of using obtained results ........................................................................................... 125 9.8. Benefits arising from building relations with customers .................... 127 9.9. Conclusion .......................................................................................... 127 9.10. References......................................................................................... 128 List of tables.................................................................................................... 131 List of figures .................................................................................................. 133

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1. Preface This publication presents the strategies for managing organizations in the in formation society. In the conditions of rapid changes in economic environment it is necessary to seek new opportunities for the organization’s development and improvement. The proven methods for ensuring sustained growth turn out to be ineffective in the new information society. Therefore it is important to adapt strat egies of organizations to changing requirements and conditions. The objective of this book is to present the theoretical and methodological concepts that could contribute to preparing and testing of new strategies for man aging of organizations under conditions created by development of new infor mation society. These concepts relate to various fields of activity carried out by companies, service providers, public administration, agencies and other institu tions. Publication is composed of 9 chapters which present selected concepts and solutions in the area of strategic management as well as results of empirical re search in this field of study. Chapter Entrepreneurial approach to management of public organizations presents contemporary changes in the management of public sector organizations and determines the role of the entrepreneurial approach to management in public administration. The need for professional management in such organizations is discussed in context of the new information society. In following chapter The specificity of manager in project management au thor states that acting in dynamic, complex and difficult to predict environment requires specific competences in field of project management. Main factor of projects success are leadership skills of managers, which according to the author have the greatest impact on the efficiency of organization. Chapter Creating strategies in the context of emerging markets discusses how different organisations make decisions in a brand new environment, especially in emerging markets which turned out to be a natural direction of development for many companies. It seems that for enterprises equipped with proper business model, experience and great knowledge about creating and executing strategies, entering emerging market could be great opportunity for growth. In The Meaning of Risk in Negotiation author presents a survey of interpreta tions of risk applied in theory and practice of negotiation with a special attention given to negotiation in broadly defined management. Main theoretical considera tions are based upon the concepts of: agency relation, consequences of informa tion asymmetry, contracting, attitudes towards risk and others important issues of negotiations in information society. The next chapter – The issue of framework qualifications of management staff

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– broadly discusses role of qualification framework for modern organization. Organizations strive to gain competitive advantage, identifying and developing key competences which include collections of qualifications of all company’s employees and especially management staff. Author review classic approaches to management qualifications and present European and Polish qualifications framework in a contextual image of changes that take place at universities offer ing programs at the field of management. Chapter Decision analysis methods in designing improvements in a compa ny’s organization and functioning presents selected research methods related to the selection of rational solutions in corporate business practice. It is assumed that the methodology of designing incorporates various designing concepts, which implies the necessity of using specific effectiveness measuring methods. Decision analysis, in its universal dimension, is considered as a research process which can be used in selecting effective management strategy for contemporary organization. In Implementing e-business into maritime business based on maritime e-com merce author presents growing role of e-commerce in contemporary business. The description is based on the example of maritime business considering both business-to-business (B2B) and business-to-customer (B2C) relations. It is worth noting, that modern Internet based tools are a key factor in the development of the information society. Following chapter The process of designing organizational systems describes the need of holistic, systemic approach to organizational system, particularly in terms of continual adaptation to changing conditions in the environment. Author presents theoretical and pragmatic approaches to the process of designing or ganizational systems of companies, based on results of comprehensive empirical research. The last chapter Customer’s role in creating the value chain present the is sue of forming enterprise value chain from the customer’s perspective. Author indicates meaning of identification process of customers’ needs and preferences in creating an effective enterprise value chain, and shows results of empirical researches results regarding this subject. Some of above mentioned chapters focus on methodological issues, while the others discuss the empirical aspects of the analysed problem. However, special attention is given to the strategies of managing various organisation in context of rapidly developing information society. The discussed concepts can be con sidered both by management theoreticians and practitioners working in differ ent kinds of organizations, who strive to improve and develop their processes of strategic management. Adam Stabryła

Bernard Bińczycki1

1. Entrepreneurial approach to management of public organizations 1.1. Changes in public sector management Due to rapid social changes, both public organizations and commercial en terprises are facing similar problems regarding management, particularly the problem of improving the efficiency of operations so that the objectives of an organization are achieved. Improving the effectiveness and efficiency of government agencies, both local and regional, has become a challenging task. Therefore, the need for professional management of public organizations is more and more widely discussed. Efficient management of human resources plays the key role in this discussion. The purpose of this chapter is to present contemporary changes in the man agement of public sector organizations, and to determine the role of the entrepre neurial approach to management in these units.

1.2. Contemporary changes in the management of public organizations Citizens’ and investors’ expectations regarding public administration and oth er bodies are constantly increasing due to the growing awareness of their rights as taxpayers and voters as well as a result of them comparing the quality of provid ed services with service parameters in neighbouring municipalities and in other highly developed countries. The role of the citizen is changing. The citizen is no longer just a voter and a supplicant, but is becoming a client and a stakeholder [J. Hausner 2008, p. 32]. One of the conditions for the effective use of municipal resources is that a dis trict or a region should have properly trained and motivated officials. Achieving the objectives of human resource management is conditional upon obtaining the right people, equipped with specific knowledge, abilities and attitudes. Properly managed human resources also contribute to satisfying citizens’ needs efficiently. The following steps have become the highlights of new public management [S. Mazur, K. Olejniczak 2012, p. 33]: ▪ modified behaviour of state and public authorities (reduction in the size of public sector spending, privatization, deregulation, de-monopolization, decen 1

Cracow University of Economics.

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tralization of power and responsibility, including the establishment of executive agencies), ▪ the use of market-based instruments in the management of the public sec tor (internal competition, quasi-markets, the introduction of flexible remunera tion mechanisms associated with the quality of work and individual employment contracts, breaking the continuity of employment in the civil service, flexible and decentralized mechanisms for financial management, decentralized human resource management system, the transition from hierarchical management to management through contracts), ▪ improving the quality of public services (including improving accessibility and users’ responsiveness, extensive use of information technology, particularly the Internet, for auditing, purchasing, payments and keeping of records, evalua tion of public policies and projects). Differences between traditional and modern public management are shown in tab. 1.1. Tab. 1.1. Differences in traditional and modern public management Parameter Traditional management in New approach management the public sector Mission of organization Satisfying the collective needs Facing new challenges, inve of society for the public stment-friendly administra tion, marketing of places Effects of work Documents, decisions Strategies, investment plans, procedures Organizational structure Centralized Divided among units organi zed around services Recruitment rules Hidden rules Competitions, interviews and tests Motivation Due to law regulations Flexible motivation systems Internal relations among units Undefined, undated Contract-based Way of action Emphasis on ethics, organiza Adopted from private sector tional unchanged Financing Constant or increasing budget Rationalization Management style Bureaucratic Flexible and open Result orientation Hidden standards Clear purposes Evaluation methodology Finance control, Verification of Economy, legality and purpo compliance with the law sefulness Source: own study.

In some countries, special policies aimed at attracting professionals working for the administration have been introduced. For example, the policy of employ ing professionals to work in public administration implemented in Norway in cludes [J. Jakubek-Lalik 2013, pp. 157-158]: ▪ diagnosing difficulties in recruiting highly skilled professionals, ▪ providing incentive for highly skilled professionals to choose career in pub lic administration, ▪ collaboration with universities: scholarships for the most talented students, paid intern-ships that may lead to employment, free doctoral studies for public

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servants, ▪ possibility of combining public service with scientific research, ▪ a need to prevent emigration, ▪ concern for the sustainable development of the country - financial incen tives and seasonal exchange of staff between headquarters and local branches, ▪ the functioning of the Centre for Competence Development, which deals with professional development, ▪ publishing textbooks intended for use within the administration, ▪ introduction of a long-term incentive scheme aimed at recruiting and retain ing qualified employees in the public administration, ▪ appointment of persons in the ministries responsible for the implementation of this scheme, ▪ the intern-ship program, carried out by the Ministry of Labour and Govern ment Administration and implemented in different Ministries, created to attract young employees; an interns works in three Ministries and undergoes six train ings on public administration, economics, law, challenges in public service, pro ject management, international reforms and personal development. Relationships between problem identification, budgeting and evaluation are shown in fig. 1.1.

Fig. 1.1. Stages in the policy-making process Source: G. Starling 2011, p. 54.

As shown in the figure, relations between the elements of the process are marked by feedback effect. The very initiation of the process (that is, the planning stage) necessitates employment of relevant human, time and financial resources and compliance with legal procedures. Effective implementation of the human resource management process in of fices of local government largely determines the degree to which objectives of public organizations are met, that is, the extent to which public interest is satis fied. It is so since administrative duties (analysis of documentation, verifying legal ity of solutions, issuing a positive or negative decision) are performed personally

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by officials. Thus such personal performance is the very object of most of the services provided. It should be emphasized that the work performed in individual jobs is deter mined by the scope of the tasks of municipalities (counties, provinces), and is generally similar in the same category of offices (although local conditions must be taken). The scope of the office’s tasks, strictly defined by law, affects the structure of employment and organizational structure, and also defines the expected and necessary qualities of local government employees.

1.3. The role of human resources management in public management As mentioned, the efficiency of public administration institutions depends on the quality of work of its officers. There are many different factors which can make this work more or less efficient, therefore smooth HR process that allows for recruitment and maintaining appropriate staff, especially officials, plays the key role in the process. Contemporary management concepts mostly emphasize the role of human re sources in the process of improving work organization. This necessitates evalua tion of employees’ work process. As far a local administration is concerned, it is of particular importance to ana lyse the conditions and factors affecting the course of HR processes, particularly those of legal nature. It is therefore important to carry out a critical analysis and evaluation of the existing law regulating personnel-related processes in the offices of local govern ment, especially in terms of their clarity and relevance to the needs of the area. It is worth emphasizing that local government administration, as opposed to government administration, lacks uniform legal solutions similar to those (albeit imperfect) defining the role of civil service. The continuing process of European integration is not without significance. Research predecessors, the author’s experience in local government work, ob servations and thoughts have enabled the author to develop a methodology for as sessing human resource management in the office of the commune [B. Bińczycki 2011, pp. 154-165]. Practical experience and relevant literature have helped to define the role of the implementation of modern methods of organization and management. Char acteristics of the process of human resource management in local government administration have been identified and discussed in detail. In the above mentioned work, the author gives a detailed discussion of the process of human resource management. Relevant literature allowed to review methods and techniques likely to be used in the evaluation process of human resource management in local government administration. The said methodology is a detailed procedure that uses well-defined tech niques and methods for evaluating HR processes in different task-oriented areas of human resources management.


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Criteria and models for evaluation of HR processes in municipalities are de fined. Empirical studies conducted in municipal offices allowed to verify the said criteria in light of practical everyday functioning of the offices. They also allowed verifying the usefulness of the methodology for diagnosis of HR processes in municipal offices. The results of this diagnosis are the starting point for the development of prac tical solutions to enable the fullest possible use of the human potential of the of fice for the successful implementation of the tasks of the municipality. The study confirmed the hypothesis that it is possible to employ human re sources management methods used in enterprises for local administration. It seems that this particular area of enterprise management is the most promising as far as adaptation of entrepreneurial management tools for purposes of local administration is concerned. The application of these methods includes both the process of recruiting the most competent officials (recruitment area) and the process of shaping their moti vation to work effectively (organization of incentive systems associated with the assessment of work and promotion opportunities). The use of tools developed in the corporate sector, however, requires their ad aptation to the specific characteristics and conditions of public office work. These are discussed in by the author. The author verifies the thesis that the effectiveness of human resource man agement in local government administration is determined by the law and by economic, organizational, social and technical factors. An example of restricted management autonomy in many offices is well ex emplified by the fact that management is not in charge of wage-setting. Legislation and limited budget resources are the major factors shaping human resources management in municipal offices. The study confirms the hypothesis that the development of human resources in local government offices depends not only on the need to improve professional qualifications, but also on the necessity to develop a specific incentive system (particularly a task-oriented system). An incentive system for local government offices would increase incentive possibilities. This, however, calls for changes in legislation as well a requires further, detailed study. It seems that it would be advisable to develop and implement a bonus system for officials in local government offices. The current legislation, however, allows the use of bonus system only for service and support workers. The thesis that improvement of HR processes in local government administra tion largely requires development and implementation of personal information systems. Studies have shown that offices using more advanced personnel information systems are able to quickly adapt their work organization to changes and new needs. Principles, procedures and tools of HR management employed in everyday functioning of surveyed offices are not effective enough to shape employees’ (particularly managers’) attitude and conduct regarding set objectives and tasks of managed units.

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Defining both the strengths and the weaknesses of human resources manage ment in local government offices allowed to propose general conclusions and suggestions for improvement of HR processes. In light of the significant part played by the local government in socio-eco nomic development of the country, measures must be taken to improve the func tioning of government offices. The process of improving the organization and functioning of these offices mainly includes seeking and implementing solutions that improve the function ing of the public sector in Poland, and at the same time can be implemented quickly and without undue burden on the budgets of local government units. Improvements in this area may be subject to significant use of modern infor mation technologies, and above all, paying particular attention to the role of hu man resources as a key resource of the organization. Thus human resource management should be the subject of continued interest of relevant departments and office management. The concept of local civil service and its possible implementation, recently widely discussed in local government circles, seems to be closely related to pros pects or the development of human resource management in local government administration. The author’s experience of working in local government leads to conclusion that the mayor’s personal attitude to quality and development of personnel and his or her work for the local community are critical to improvement of human resources management. In conclusion, rational steps, defined by the universal laws and the principles of the science of human resources management, and pragmatics, having its deter minants in the realities of a functioning democracy, both contribute to the process of human resources management as a key area of public management in the local government office.

1.4. Conclusion The evaluation of state and local government is often made mostly through their efficiency and effectiveness. An important factor in the improvement of the administration are reforms of management instruments. That is because many traditional tools of policy became ineffective. H. Bieniok emphasizes that „hu man resources management techniques are not used widely” [2010, p. 153]. Therefore, administration researchers started to evaluate the old European and American administration models. The effect was that they created and replaced traditional procedures by the idea of the New Public Management. Public management models developed in response to the challenges brought by reforming public management processes. These processes have increased the emphasis on the economic aspects of the spending of public funds to improve the quality of public services and ensure greater effectiveness of public organiza tions. The reform of public management assumes that the implementation of new management concepts will affect the efficient implementation of the tasks to be completed by the citizens.


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The entrepreneurial approach to the public management introduces manage rial methods and the concept of administration. The idea is to transform methods and techniques used in the business sector for the management of public organi zations. This need stems from the increasing complexity of decisions made by public managers and it presents a new strategic perspective consisting of market mecha nisms. Further research by the author must determine the extent to which and particu lar areas where these methods and techniques can be adopted.

1.5. References Bieniok H., Potencjał prostych i nadal niewykorzystanych innowacji w zarządzaniu zasobami ludzkimi w Polsce [in:] Innowacje w zarządzaniu przedsiębiorstwem oraz instytucjami sektora publicznego, H. Bieniok, T. Kraśnicka (eds.), Akademia Ekonomiczna w Katowicach, Katowice 2010 Bińczycki B., Podejście diagnostyczne w badaniu zasobów ludzkich organizacji publicznych, Uniwersytet Ekonomiczny w Krakowie, Kraków 2011 Hausner J., Zarządzanie publiczne, Wydawnictwo Naukowe SCHOLAR, War szawa 2008 Jakubek-Lalik J., Doświadczenia administracji w Norwegii [in:] Zarządzanie wiedzą w organizacjach publicznych. Doświadczenia międzynarodowe, S. Mazur, A. Płoszaj (eds.), Wydawnictwo Naukowe SCHOLAR, Warszawa 2013 Mazur S., Olejniczak K., Rola organizacyjnego uczenia się we współczesnym zarządzaniu publicznym [in:] Organizacje uczące się. Model dla administracji publicznej, K. Olejniczak (ed.), Wydawnictwo Naukowe SCHOLAR, War szawa 2012 Starling G., Managing the Public Sector, Wadsworth, Boston 2011

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Magdalena Dolata, Andrzej Stańda1

2. The specificity of manager in project management2 2.1. Role of project management in contemporary organizations Contemporary organizations act in a dynamic, complex and difficult to predict environment, where processes of globalization, rapid and discontinuous changes of technology, competences and permanent evolutions of approach to competi tion, influence the whole picture of their operation. A high degree of uniqueness and significant changeability of the realized tasks force the organizations’ mana gers to continuously search for methods and techniques, which would allow to increase the level of flexibility of organizations’ adjustment to changes that take place. Appearance of higher social expectations, with simultaneous increase of the competition level, results in a growth in need for unique and one-time character, demanding application of knowledge and standards from the scope of projects management. Therefore, it is worth asking a question, what or who decides to a significant extent about the fact that some economic organizations realize projects better than others in categories as time, realization within the planned budget and de termined scope. While attempting to answer the above mentioned questions, we may refer to one of intra-organizational factor of projects success, which is leadership. This factor seems to be significant, because regarding specificity of projects mana gement, it may be concluded that specific influence on the effectiveness of the realized actions is held by projects managers [J.M. Lichtarski 2011, p. 216].

2.2. Starting point – systematization of notions of projects and projects management Interest in the notions of projects management has caused appearance of nu merous publications in recent years. Authors of those publications come from various professional circles. While attempting to define the notion of project, a Poznań University of Economics. The project was funded by the National Science Centre allocated on the basis of decision No DEC-2013/11/D/HS4/03863. 1 2

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relation between the terms of project and undertaking needs to be determined. The term project comes from a Latin word “proicere” which means “something preceding”. According to a foreign words dictionary the word project means “an intentional plan of action; conduct, idea, intention, model, sketch” [W. Kopaliński 1990, p. 65]. In turn, undertaking is determined as an “intended, decided, realized thing” [M. Szymczak 1988, p. 968]. Some authors claim that these terms should be treated as synonyms [H. Kerzner 2005, p. 231; B. Lent 2005, p. 35] however, the most representative position nowadays suggests that those terms are not equal in semantic terms [M. Pawlak 2006, p. 17; D. Lock 2001, p. 2], because undertak ing is a notion understood much wider than a project. As a consequence, it may be stated that each project is an undertaking, but not every undertaking is a project. As a result of semantic ambiguity of those notions, they should not be applied interchangeably. The notion of project, in sciences on organization and management, is not ex pressly defined. With the course of time, definition of this term underwent some transformations [P. Charette et al. 2004, p. 11]. It arises from the fact that the term project is of natural character, which means that there is no finite set of markers that would characterize them. Therefore, it is impossible to create a single idea, a universal definition, which significantly influences differentiation of approached of its authors. This multiplicity and differentiation of the term project, creates a need to set definitions proposed by authors in order. It is worth starting the review of definitions from one proposed by Project Management Institute, most often referred to in various literature positions, ac cording to which a project is “a temporary action taken in order to produce a unique product, provide unique service or achieve unique result” [Project Man agement Institute 2009]. In this interpretation, attention should be focused on three basic determinant of a project, which were taken into consideration in sub sequent attempts to form a definition by other authors [E. Barber 2004, p. 301]: ▪ determined aim, which is a result of taken actions, ▪ temporariness of the projects, meaning that every one of them has a strictly determined start and end, ▪ uniqueness of the project. Similarly, the term project is defined by S. Baker and K.Baker, who suggest that this is a unique intention with specified start and end, taken by people in or der to fulfil set goals within boundaries of the defined time, resources and quality [1992]. At the same time, they point to additional, significant elements of the project, which determined project actions, i.e. time, quality and resources. A unique character of project and its determinants are also underlined by K. Kerzner, who defines project as “an undertaking with a given aim, demanding resources and placed within a framework of time, cost and quality limits” [H. Kerzner 2005, p. 17]. This means that actions realized within the project have strictly determined time, budget and level of quality. The significance of capital in the project is emphasized by J.R. Turner, who states that “... a project is an undertaking, where human, material and financial resources are organized in an innovative way, in order to conduct a unique scope of works, according to a given specifications, with limitations of cost and time, to achieve a beneficial change determined by qualitative and quantitative aims” [1993, p. 8].

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Uniqueness of the project’s result is emphasized to a higher extent by M. Paw lak, assuming that “a project is an undertaking realized within a given organiza tion, which is new, untypical, different from routine actions, with which a particu lar organization had nothing to do before” [M. Pawlak 2006, p. 17]. Acceptance of such comprehension narrows the notion of project only to big and innovative undertakings, which we should not agree with entirely, because according to the assumptions of the definition, development and production of a new version of a car would not be a project for a concern, because the basic field of operation of vehicle corporations is car production. Narrowing of the term is also supported by a statement that a project is realized “within a given organization”. In this way, M. Pawlak assumes that projects realized within the scope of cooperation with other organizations or persons, which nowadays is becoming more and more popular, cannot be called projects. A. Stabryła fully disagrees with exposing uniqueness and non-repeatability of a project in its various definitions, claiming that “majority of projects is of typi cal and repeatable character, however with some features that may ascribe some specificity and originality” [2011]. Although, every action realized in a form of a project will not be completely the same because of the fact that among others there are different resources, different time for realization, different quality of the developed service or product, and what is more, circumstances of decision making may be different as well. However, it may be undoubtedly agreed that a project is a form, which serves realization of certain tasks, outstanding with high level of complexity and limitations [J. Söderlund 2004, p. 189]. Another characteristic feature of a project is its purposefulness. This aspect is clearly highlighted by G. Vallet, who stats that a project is a collection for actions taken for a specific and single purpose [2008, pp. 525-555]. And this purpose is characterized as single, when upon the moment of achieving the aim, it may be stated that it is achieved completely. With such a definition of the term, the follow ing question arises, do actions taken in order to realize a strategy may be called a project? Can achievement of a specific aim, with no regard to other elements, which constitute mentions for the project’s existence, be called with this term? G. Vallet points to existence of a strong relation between the project and a set aim of the project, narrowing this term significantly at the same time. The significance of the project’s purposefulness was also emphasized by G.D. Oberlander, writing that a project is “an action taken in order to trigger results that are expected by the ordering party” [G.D. Oberlander 2000, pp. 4-5], and by R.K. Wysocki and R. McGary, according to whom “a project is a sequence of unique, complex and interconnected tasks, which have a common aim, which are to be carried out in a specific time, without delays, according to agreed requirements” [2005, p. 47]. The term project is presented in a similar perspective by Z. Szyjewski, describ ing it as, “non-repeatable, non-routine process of realization of specific aims, in a specific time with specific resources” [2004, p. 14]. Specification of the aim is a necessary condition for a project to exist, and it is an irrefutable fact, because it not only determines the direction of action, but it also informs about the ad vancement degree of the realized tasks, thanks to which we may specify success or failure of a project. However, some doubts are triggered by a statement that action cannot be prolonged in time and that it needs to fulfil all original assump

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tions. Therefore, is it true that a project that exceeds the budget or does not fully meet the set requirements is not a project? Well, it is, but in this context there is a need to refer to the level of effectiveness of this project. The notion of projects is interpreted to a wider extent by M. Trocki, according to whom it is a unique (realized only one), complex undertaking, included in a finite time interval – with a distinguished start and end – realized by a team, in a way that is relatively independent from a repeatable operation of an enterprise, through special methods and techniques” [2009, p. 18]. The author points to other significant characteristic features of a project, namely that there should be a team of people organized to realize it, and he emphasizes a necessity to separate, at least partially, independence of actions taken in a project from standard ones real ized in an enterprise. Strategor Group also assumes that projects ought to be real ized independently from the remaining actions of a company [Grupa Strategor 2001, p. 365]. Such a belief arises from the fact that projects may be realized in a twofold manner, they are have a character of independent undertakings, or they form a certain separated structure within an enterprise, thanks to which their au tonomy is maintained, which at the same time needs to remain strictly correlated with strategy of the organization [J. Haffer 2009, p. 17]. In this context, projects may be a way of implementing strategies into organizations [J. Kenny 2003, p. 52], which is a reflection of its content on the operational level [R.W. Griffin 2004]. The above mentioned determinants were among others incorporated into a definition of project developed by G. Leśniak-Łebkowska [2001, pp. 235-236], according to whom a project is “a sequence of tasks which has a clear start and an end specified in time, regarding available resources and expected results. It is perceived within a course of everyday, routine work, it is realized simultane ously with work, or team members are solely focused on its realization. After its completion, there is always something new remaining, which is implemented into the organization in order to improve its operation”. In turn, R. Hammer, referring to sequence of tasks is of the opinion that a project is a “complex”, “omnibus”, “bigger action”, i.e. such, where “in the process of planning, creating and realization, many departments of a particular enterprises take part (or even many enterprises)” [1978, p. 81]. The feature of complexity was also raised by J. Söderlund, who specified a project as a “form that serves realization of certain tasks, outstanding with great complexity and limitations” [2004, p. 189] and, J.P. Lewis defining project in the aspect of a “multitask commission, for which requirements regarding costs, time and scope are determined, and which is carried out only once” [2006, p. 13]. While mentioning the above definitions it is worth paying attention to the fact that a project consists in sequence of actions, which are realized by particular persons, who come from various divisions or organizational units, which as a consequence highlights that a project is interdisciplinary. Since a project becomes separated from other actions in a company, it needs to present a proper organiza tional structure [D.B. Boddy, R.P. Paton 2004, p. 232-233], which enables com mencement of a series of actions demanding engagement of “specialists from various fields” [M. Pawlak 2006, p. 18]. A similar position is taken by H. Kerzner, determining a project as a collection of actions and tasks, which [2006, p. 2]: ▪ have a specified aim,


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▪ have specified dates of commencement and completion, ▪ have limits in financing (if there is a need for limits), ▪ use human, material and financial resources (e.g. personnel, equipment, fi nancial resources), ▪ are interdisciplinary. We may also point to such situations, where projects realized within an or ganization does not embrace with their reach various fields of organization’s op eration, which means that lack of interdisciplinarity in such actions should not exclude their qualification as a project. What is more, a relatively compact collection of features, characteristic for a project, was proposed by D. Frame, according to whom four basic determinants may be differentiated [2001, p. 2]: ▪ it is target-oriented, ▪ it consists in taking coordinated and interconnected actions, ▪ it is finite, it possesses start and end, ▪ it is unique to some extent. D. Frame pointed to a significant difference present between a statement that a project should be fully unique and an opinion that a project should be unique, but only to a given extent. It arises from classification of projects, namely there are ones that are completely new for an organization (as designing operational software for new computer appliances), and ones that are connected with basic scope of organization’s operation and similar to each other, being different only in terms of certain actions (e.g. for a company that supervises construction of houses, it may be unique to install new heating technology, while creation of the structure and of the remaining elements used at the construction site is comprised within actions that are not significantly different from those taken until then) [D. Frame 2001, pp. 5-6]. On the basis of the analysis of literature that was carried out, the following definition is proposed to be accepted in order to systematize terminology: a pro ject is a temporary undertaking, consisting in a series of complex and coordi nated actions, taken in order to manufacture a unique product or provide unique services, characterized by a high level of risk, and possessing precisely defined: aim, schedule of conduct, structure of costs and requirements referring to quality. Making the above definition more precise the following features of a project may be listed: ▪ autonomy, ▪ interdisciplinarity, there are numerous experts from various departments or organizational units involved in its realization, ▪ engagement of various resources; human, capital, conceptual, material, ▪ application of specific structural solutions, ▪ use of specified methods and techniques, ▪ dynamics, ▪ risk referring to its realization. Having the term project carefully specified, it is possible to move to systemati zation of the projects management notion on this basis. Namely, projects manage ment, similarly to the term project, is not unambiguously defined, despite grow ing interest in this notion, from the side of both practitioners and theoreticians.

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A key notion in projects management is a project, whose definitions and features are presented above. In literature of the subject, the most often mentioned definition is that pro posed by Project Management Institute, according to which projects management is “application of knowledge, abilities, methods and techniques within actions of the project, in order to meet its requirements”. In organization activity, as in every other field oh human actions, achievement of the set goals requires proper methods and techniques, which was emphasized in the definition. W.R. Duncan defines projects management in a similar manner, according to whom “projects management is the application of knowledge, abilities, tools and techniques in project’s tasks, in order to fulfil or exceed the needs and expectations of various groups of interests connected with the projects” [1996, p. 6]. It ought to be no ticed that in this context, W.R. Duncan defined the project’s aim, identifying it to a broader extent, as fulfilment of needs of the project’s stakeholders, i.e. all the people, which are interested in a direct or indirect way with results of the organi zation’s operation. Significance of this aspect is also underlined by H. Kerzner, who specifies projects management as “planning, scheduling and control over a series of interconnected actions, allowing to realize project’s aims effectively and in a way that complies with it stakeholders’ expectation to the highest ex tent” [2005, p. 18]. From the perspective of numerous authors, a key element in projects management is a human factor [A.P. Van der Merwe 2002, p. 409] and motivation of this factor. Necessity of motivation of human capital was empha sized in a definition of a British standard BS 6079, according to which projects management is ”... planning, monitoring and control over all aspects referring to projects, and motivating everyone, who is involved in work that aims at achiev ing assumed targets of projects in a specified time, without exceeding assumed costs and while maintaining required quality” [British Standard Institute 1996, p. 2]. A controversial aspect in the above mentioned definition is a statement that we can talk about projects management in a situation where there is realization of aims, regarding time, cost and quality limitations. Therefore, a question arises, whether going beyond budget, date or unfulfilling specified quality requirements during realization of the project means that it cannot be called projects manage ment, or it can but in the context of its ineffectiveness. In literature of the subject there is an agreement that projects management consists in, while embraced more broadly, “fulfilling classical functions of man agement, i.e. planning, organizing, deciding and motivating with reference to specific undertakings – projects” [M. Pawlak 2006, p. 8], but it’s not identical with it. The statement presented above is close to a proposal put forward by N. Mingus, according to whom projects management in a traditional meaning is perceived as planning, creating schedule and controlling realization of projects, heading towards achievement of set goals [2009, p. 20]. A definition similar to those mentioned above, emphasizing a necessity to realize the management func tion in the concept of projects management was proposed by J.P. Lewis, who interpreted it as “facilitation of planning, scheduling and controlling of all ac tions that needs to be completed in order to achieve the projects’ goals” [2006, p. 17]. In this interpretation, projects management is directed towards projects’ aims, which is not present in definition by M. Pawlak. The aspect of interpersonal


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relations and evaluation of projects’ elements, which by a principle are presented after its realization, were not taken into consideration here [N. Mingus 2009, p. 20]. R. Haberfellner made an attempt to identify features of projects manage ment, differentiating them from classic notion of management, formulating the following distinguishers [1992, p. 2091]: ▪ limitation of the problem and of the formulated task, ▪ agreeing on projects’ aims and logics of its course, relatively the conduct, ▪ engagement of staff, financial and material resources, ▪ attitude towards implementation of changes, ▪ actions are realized within determined structures, which exist only in the period of realization of projects, ▪ managing a project group. The above mentioned features suggest that projects management is not just a collection of methods and techniques applied according to the project’s specific ity by its participants. It is also one of the necessary competences, equally sig nificant as leadership, management, technical and other abilities. However, it is worth noticing that projects management requires other competences [J. Haffer 2009, p. 72]. According to the concept of complex competences model [Jaafari 2002, p. 469], managing a modern project should not be solely identified with sequence planning and coordination of separate actions. It should be closely cor related with abilities of costs, scope of activity, risk management and technical skills as well as those that are helpful when dealing with stakeholders [D. Dvir, A.J. Shenahr 1995, p. 608]. What is more, it requires integration of various mana gerial functions, such as creation of teams, settlement of conflicts, leading in a team, controlling others [J. Haffer 2009, p. 72].

Fig. 2.1. Perspectives of projects management Source: own work based on: M. Pawlak 2006, p. 28.

Projects management can be perceived from the angle of four perspectives (fig. 2.1), which allows to differentiate various aspects of this notion. The dimen

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sions of projects management may be taken into consideration in [M. Pawlak 2001, p. 10]: ▪ instrumental aspect, ▪ functional aspect, ▪ institutional aspect, ▪ social aspect. Within each dimension presented on fig. 2.1, problematic spheres of projects management may be decided on, which analogically embrace: a field of methods of projects management and fields of functional, institutional and social projects management [M. Trocki, B. Grucza, K. Ogonek 2009, p. 32-33]. In the instrumental dimension, the most significant aspect is to choose meth ods and techniques that support the process of solving functional, institutional and social problems. Functional projects management deals with searching for answers for the fol lowing questions: ▪ what is the scope of the projects (in objective sense)? ▪ what goals to be achieved were set and which actions are needed to be taken in order to realize them? ▪ what is the schedule of actions in the context of sequence of tasks and dates of their realization? ▪ what resources are necessary to realize projects and their separate tasks? In the area of institutional projects management, answers for the following questions are searched for: ▪ in what way a division of tasks, entitlements, competences and responsibi lities should be conducted within the projects? ▪ in what way the project groups should be incorporated into the organizatio nal structure of the enterprise? ▪ how the circulation of information among separate elements of the structure should look like? The problematic sphere in social projects management is constituted by the following notions [M. Trocki 2009, p. 74-75]: ▪ which requirements regarding knowledge, abilities, motivation and enga gement of projects’ participants result from project’s tasks, and who is able to meet them? ▪ which additional actions from the scope of projects participants’ training, development and motivation should be taken? ▪ which characteristic values, management styles and patterns of behaviours should be obligatory during realization of projects, and to what extent they result from organizational culture? Deliberations over the definition of projects management suggest that in the literature of the subject, a difference between the terms of project management and projects management is not visibly highlighted. Projects management refers to coordination of actions that are connected with realization of multiple projects, and not only within a single undertaking, as it happens in case of project man agement. This means that in projects management, potential problems regarding synchronization and integration of actions within projects and their sequential


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nature need to be taken into account. On the other hand, proper coordination of actions in projects management should provide a synergy effect. Summing up the above deliberations, it is assumed that projects management is a process that consists in synchronization and coordination of projects real ized in the organization, where proper application of competences, methods and techniques allows to achieve the effect of synergy. While the process of projects management in an organization is composed of planning, organizing, motivating and controlling. And within these functions, competences should be determined and techniques and methods of projects management adjusted.

2.3. Multiplicity of project manager’s roles A starting point in determination of roles held by a projects manager is cate gorization of his organic tasks. Normative determinations of the subject are not explicit in this notion, which means that these actions, depending on the accepted criteria, are differentiated, regarding both the quantity and subjective significan ce. Most often, a starting point for their typology is posed by functional appre hension of the management process, encompassing four functions listed above. It may be assumed, also taking into consideration the above comments on perspec tives of projects management that the most crucial tasks of a projects manager include [M. Pawlak 2006, pp. 205-249; J. Kotter et al. 1999, pp. 186-188]: ▪ determination of the project’s aim(s) and their structuring to the form of operational aims/tasks; aims of the project are actually defined internally by the commissioner (internal or external), but their disaggregation to the form of tasks, with their whole complexity with regard to the functions of the created system, is a highly important duty of a projects manager, ▪ development of the project’s organizational structure; this task is of staff character, and it aims at static structuring (configuration of the project team and allocation of decisive entitlements of its members, which is significant in case of especially elaborate projects) and dynamic structuring (specialization through de termination of scopes of tasks of team members and defining, with regard to those tasks, towards which it is possible, standardization of ways of their realization). A significant aspect is to decide on decisive entitlements in case of applying matrix solutions and their derivatives, e.g. tensor or hybrid structures, ▪ determination of the project group; proper determination of a subject struc ture of the project task allows to specify requirements regarding the project team/ group. Final composition of the team should arise from principles accepted in the project, referring to establishment of a subject system, with an assumptions that the basic project directive in this case is consequent application of the subjective approach, ▪ planning and monitoring of the course of project tasks’ course, with special attention to the schedule of realization and costs; this task has a classic charac ter of a task to be fulfilled by a staff project manager in the part referring to the planning process, with regard to variety of plans (initial and detailed planning), ▪ supervision over the level of realization of separate fragmentary tasks of the project. The function of supervision requires professional development of all control stages and their methodically proper structure with special consideration of feedback mechanism, allowing to implement corrections if there are any signi

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ficant deflections in the process of project task realization, ▪ ensuring efficient communication (internal and external); complexity of pro ject undertakings requires efficient communication, which is significant because 70% of time of the management process is devoted to communication (writing, reading, listening, etc.). Specification of logics of the communication process in project groups is a necessary condition of effective project(s) realization, which requires both directions of communication (vertical and horizontal) and ways of communication, ▪ adequate documentation of works of a project team; every undertaking ne eds to be documented, which means an obligation do prepare a system of do cumenting project’s results on all its stages. Properly developed and archived documentation is a great source of knowledge that improves realization of future projects, ▪ making decisions in accordance with possessed qualifications, project ma nagement in its significant sequence, various decisions by the project manager, made most often in circumstances of risk and uncertainty, as this is specific for project undertakings. Therefore, the ability to make methodically rational deci sions is a greatly significant qualification of a project manager, which guarantees their material rationality, ▪ current management of a project group; specificity of operational project management demands a series of requirements to be met, which determine effi cient course of realization of project group’s tasks. They include: determination in action, ability to delegate, organization effectiveness, balance of behaviours, initiative, creativity, communicativeness, stimulation, openness and flexibility, constructiveness of criticism, positive attitude, building a system of cultural va lues, ability to evaluate, negotiation ability, ability to settle conflicts, consequence and discipline, integration.

Fig. 2.2. Relation between projects management and roles of projects manager Source: own work.

Tasks of the project manager determined his organizational roles, specified with expectations of the commissioner, and translated into manager’s organized


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organizational behaviours, which is demonstrated in fig. 2.2. In order to determine their essence, a division of managerial roles proposed by H. Mintzberg [1973] can turn out to be handy. In relation to projects management, it needs to be agreed that despite of a dominating opinion, role of project managers does not only consist in planning, organizing, motivating and controlling, but first of all on establish ing relation between him and his subordinates, conducting negotiations, motivat ing employees, solving conflicts, processing and spreading information, making decisions in unclear situations, dividing forces and resources. There are three groups of project manager’s roles, disaggregated into ten specifically determined sub-roles, referring to particular situation from the scope of his activity. The first group comprises of interpersonal roles, which makes it easier for a manager to maintain undistorted functioning of project teams. The first role is an attitude of a representative; project manager acts formally as a representative of the group before institutions and people from the project’s environment, and according to his formal and actual authority, he represents views and principles of team mem bers. The second interpersonal role is a place of connector and mediator (most often between the project’s parties); the project manager enables communication among project’s stakeholders (there are often plenty of them), transferring neces sary information, at the same time heading to achieve the project’s aim. The third, interpersonal role of the project manager consists in inspiring others to activate strengths and potential of the project team; this role is fulfilled not only because of the character of managerial post, but first of all because of individual features and qualifications of the manager. The second group of project manager’s roles comprises of informative ones. Two informative roles that can be joined together are collecting and transferring information; project manager (in relation to both his subordinates and projects’ commissioners) is a source of significant data and its transmitter; informative roles are determined by organizational structure of an institution, where the project is realized; they allow information flow, which enables executors of the project to act efficiently. The third informative role is a spokesman function kept by the project manager; it encompasses representing views of the project teams in cases that are significant for it towards the com missioner and the remaining project’s stakeholders. The group of decisive roles joins four significant elements. Taking initiative and implementing new project solutions is one of managerial roles in this group; such actions are taken by the project manager usually in the face of changes that take place in project groups or their surroundings, but not only, this role is played by the projects manager also while improving the processes of work in project groups. Another role is connected with dealing with difficult situations in a group, solv ing critical situations; manager plays it in sudden cases, which happen relatively seldom; he decides about taking action in unpredictable situations that require quick decisions, ability to act under pressure of time and stress. Project manager also plays a role of a negotiator; he leads negotiations inside task groups, with co-workers and stakeholders. The most difficult role of the project manager is the decisive one, connected with allocation of measures. The manager decides on allocation of resources, time of work, which requires high competences, respon sibility and careful knowledge of processes that form separate projects. This role

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is especially important in a situation when most undertakings which are included into a project task, are realized in conditions of resource limitations.

2.4. Improving management processes Complexity of contemporary management practice is expressed in a neces sity to improve management processes that refer to various spheres of enterprise operation. One of such spheres comprises of projects management, which is currently becoming a dominating dimension of management practice. There is an increasing number of highly complex projects, consisting in numerous sub projects, realized in various time sequences. Therefore, qualifications of projects managers constitute a highly significant “success factor” of a project undertaking. The requirement of professionalization, regarding comprehension of the essence of what a project is in its whole complexity, as well as within tasks and roles fall ing in its framework, demands to treat the process of shaping project manager qualifications as a highly significant task.

2.5. References Baker S., Baker K., On Time/On Budget, Prentice Hall, Englewood Cliffs, NJ, 1992 Barber E., Benchmarking the management of Project: a review of current think ing, “International Journal of Project Management” 2004, Vol. 22 Boddy D.B., Paton R.P., Responding to competing narratives: lessons for project managers, “International Journal of Project Management” 2004, Vol. 22 British Standard Institute, BS6079-1996 Britush standard 6079: guide to project management, British Standard Institute, UK 1996 Charette P., Mitchell A., Mazur S., McSweeney E., Zarządzanie projektem. Po radnik dla samorządów terytorialnych, Wydawnictwo Małopolska Szkoła Administracji Publicznej Akademii Ekonomicznej, Kraków 2004 Duncan W.R.: A Guide to the Project Management Body ofKnowledge, Project Management Institute, Four Campus Boulevard 1996 Dvir D., Shenahr A.J., Toward a typological theory of project management, “Re search Policy” 1995, No. 5 Frame J.D., Zarządzanie projektami w organizacji, WIG-Press, Warszawa 2001 Griffin R.W., Podstawy zarządzania organizacjami, Państwowe Wydawnictwo Naukowe, Warszawa 2004 Grupa Strategor, Zarządzanie firmą, Państwowe Wydawnictwo Ekonomiczne, Warszawa 2001 Haberfellner R., Projektmanagement, [in:] Handwoerterbuch der Organisation, Verlag C.E. Poeschel, Stuttgart 1992 Haffer J., Skuteczność zarządzania projektami w przedsiębiorstwach działają cych w Polsce, Towarzystwo Naukowe Organizacji i Kierownictwa Stowarzy szenie Wyższej Użyteczności DOM ORGANIZATORA, Toruń 2009 Hammer R., Technikaplanów sieciowych, „Prace Naukowe Instytutu Organizacji i Zarządzania Politechniki Wrocławskiej” 1978 Jaafari A., Knowledge, Leadership, Competencies, Mindsets and Role of Educa tional and Research Institutions. The First International Conference on Con


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struction in the 21st Centuary (CIT 2002): Challanges and Opportunities in Management and Technology, Miami, Florida 2002 Kenny J., Effective project management for strategic innovation and change in an organizational context, “Project Management Journal” 2003, Vol. 31, No. 4 Kerzner H., Advanced Project Management, One Press, Warszawa 2006 Kerzner H., Advanced Project Management. Edycja polska, Helion, Gliwice 2005 Kopaliński W., Słownik wyrazów obcych i zwrotów obcojęzycznych, Wydawnic two MUZA S.A., Warszawa 1990 Kotter J., Sathe V., Schlesinger P.F., Schlesinger L.A., Projektowanie organiza cyjne, PWN, Warszawa 1999 Lent B., Zarządzanie procesami prowadzenia projektów: informatyka i telekomu nikacja, Difin, Warszawa 2005 Leśniak-Łebkowska G., Zarządzanie projektami, [in:] Podstawy organizacji i za rządzania, M. Romanowska (ed.), Difin, Warszawa 2001 Lewis J.P., Podstawy zarządzania projektami. Zdobywanie kwalifikacji pozwala jących wyprzedzić konkurencję. Kompendium wiedzy o mądrze zaplanowanej, zespołowej i sprawnej pracy w każdej organizacji, Helion, Gliwice 2006 Lichtarski J.M., Zakres zadań i profil kompetencyjny kierownika zespołu zadanio wego – wyniki badań empirycznych, [in:] K. Krzakiewicz (ed.), Praca kierow nicza w nowoczesnym zarządzaniu, Uniwersytet Ekonomiczny w Poznaniu, Poznań 2011 Lock D., Zarządzanie projektami w organizacjach, WIG- Press, Warszawa 2001 Mingus N., Zarządzanie projektami, Wydawnictwo Helion, Gliwice 2009 Mintzberg H., The Nature of Managerial Work, Harper&Row, New York 1973 Oberlander G.D., Project Management for Engineering and Construction, Mc Graw-Hill, Boston 2000 Pawlak M., Zarządzanie projektami, Wydawnictwo Naukowe PWN, Warszawa 2006 Pawlak M., Podstawy zarządzania projektami, Wydawnictwo Politechniki Lu belskiej, Lublin 2001 Project Management Institute, “A Guide to the Project Management Body of Knowledge”, PMBOK GUIDE – fourth edition, Warszawa 2009 Söderlund J., Building theories of project management: past research, question for the future, “International Journal of Project Management” 2004, Vol. 22 Stabryła, A., Zarządzanie projektami ekonomicznymi i organizacyjnymi, Wydaw nictwo PWN, Warszawa 2011 Szyjewski Z., Metodyki zarządzania projektami informatycznymi, Placet, War szawa 2004 Szymczak M. (ed.), Słownik języka polskiego, tom I, PWN, Warszawa 1978 Trocki M., Grucza B., Ogonek K., Zarządzanie projektami, Polskie Wydawnic two Ekonomiczne, Warszawa 2009 Trocki M., Organizacja projektowa, Bizarre, Warszawa 2009 Turner J.R., The handbook of project management: improving the process for achieving strategic objectives, McGraw-Hill, London 1993 Vallet G., Framework for Measuring Success of Construction Projects, Research Program C: Construction Project Delivery Strategies, Report 2001–003–C–

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01, Brisbane, Australia 2008 Van der Merwe A.P., Project Management and business development: integrat ing strategy, structure, process and projects, “International Journal of Project Management” 2002, vol. 20 Wysocki R.K, McGary R., Efektywne zarządzanie projektami, Wydawnictwo He lion, Gliwice 2005

Agnieszka Dziubińska1

3. Creating strategies in the context of emerging markets 3.1. Challenges for strategic management process Saturation of mature markets traditionally perceived as a source of stable in come and innovations with the simultaneous expectations of investors regarding rapid and stable return created a quite inconvenient situation for management boards of many companies. It resulted in search for new area of strategic expan sion. Emerging markets turned out to be a natural direction of development. It seemed that for enterprises equipped with business models backed by positive experience and great knowledge about creating and executing strategies, enter ing a new area would resemble “a blitzkrieg’’. However, it quickly turned out that conventional attitude towards creating strategies in the context of emerging markets brings results which leave a lot to be desired [T. Khanna, K.G. Palepu 1997]. What is more, enterprises, which derived from emerging markets, by ap plying astounding strategies soon found themselves among the largest companies in the world, jointly referred to as “the bilion dollar club’’. Nowadays, we are ac customed to hear that companies from India or China take over flagship brands of Western companies. However, it is worth mentioning that only relatively recently was there a common belief that companies from countries of lower level of eco nomic development do not have any strategic resources which would allow them to compete with companies from most developed markets. From the point of view of conventional attitude towards creating strategies, the conditions of emerging markets spawn a number of challenges for the whole strategic management process. The possibility to solve this problem in an effec tive way largely exceeds capacity of one chapter. However, the outlined problem has become a source of motivation for making an attempt to present in the fol lowing part the descriptive model of creating strategies, which is a result of the author’s own research and the research of literature of the subject. The subject of the empirical research were MNC operating on the emerging markets, which made it possible to observe how organisations make decisions in a brand new environment.

1

University of Economics in Katowice.

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3.2. Definition of emerging markets It is commonly believed that the notion of “emerging markets’’ appeared at the beginning of the 1980s together with the introduction of new investment products of unit trusts. Since that time the notion has been used in relation to many pheno mena and its gist has sometimes been reduced to utterances bordering on tautolo gy (e.g. when emerging markets have been defined as those undergoing transfor mation). Thus, the definition of emerging markets is often supplemented with the enumeration of national economies. A definition given by Hoskisson et al. is such an example. The authors defined this group of markets as satisfying two criteria: a rapid pace of development and government policies that favour economic line arization as an essential growth impulse, and then enumerated 64 countries [R.E. Hosskinson, L. Eden, C.M. Lau, M. Wright 2000, p. 249]. Making references to macroeconomic ratios while making an attempt to define emerging markets is convenient and it is used by several important international organisations which regulate the economic environment (e.g. the World Bank, UNCTAD). These ra tios, however, do not say much about the processes that actually take place in the environment, therefore their usefulness for the decision-making processes is limited (e.g. if the GDP per capita was taken into consideration, the United Arab Emirates would be placed among the most developed countries). In some cases collected ratios may even show a deceptive image, in particular in the group of the emerging markets itself, where sorting criteria become irrelevant due to dyna mic changes (such conclusions may be drawn for example in the process of ana lysing data regarding countries of which the so called BRIC group is comprised). Methodological difficulties in defining emerging markets do not deter enter prises from defining opportunities which they can offer. By studying possibilities in such industries as energetics or technology, the Center for Knowledge Socie ties, defines emerging markets as regions which undergo rapid informatisation in the conditions of limited or partial industrialisation [Emerging Economy Re port 2008]. Whereas, the authors of a famous book, T. Khanna and K.G. Palepu, Winning in Emerging Markets: A Road Map for Strategy and Execution, by stu dying the influence of the environment of an institution on a strategy, made an assumption that these are the markets where buyers and sellers cannot easily do business [2010, p. 6]. According to them, emerging markets may be characteri zed by high transaction costs and barriers in operational activity, since they lack traditional market infrastructure that supports indirect transactions. However, the environment was not hollow, the role of culturally rooted institutions increased. It is particularly difficult for enterprises from other markets to recognize the rules which have been shaped within the context of history. It should be emphasized that, as it is in case of the aforementioned definition, models deriving from ma ture markets were also referred to in the research conducted within the scope of emerging markets. Summing up the short review of definitions of emerging markets above, it may be stated that: ▪ transformation process makes their environment highly dynamic, ▪ low efficiency of formal market institutions makes the business environ ment highly complex (especially for enterprises outside a given market), ▪ the environment of emerging markets differ from mature markets, it is much

Creating strategies in the context of emerging markets

35

more diversified within the scope of the group itself.

3.3. Theoretical foundations In strategy-creating process the relation of environment and organisation is undisputed, whereas the issue of fit of a strategy, organisation and environment has had a long tradition in the management literature. It is worth bringing back classical theses on fit of strategy and structure [A.S. Chandler 1962], its impor tance for the success of an enterprise [P. Lawrence, J. Lorsch 1967] or even defin ing the strategy itself as a search for optimal fit [M.E. Porter, 1996]. Within the framework of international management, the most exploited concepts of creating strategies were based on the assumption of fit, including transnational strategy [Ch.A. Bartlett, S. Ghoshal 1989]. The dynamic nature of economic reality led to make a process interpretation of the fit category, according to which processes inside an organisation occur in relation to transformation of the environment and they should be heading for “external fitness’’ [B. McKelvey 1987]. On the level of relations with the exter nal environment, companies compete with one another with the aid of products/ services which are directly selected by the market. However, the selection also indirectly affects elimination of opinions, routines of channels of passing knowl edge [A.K. Gupta, V. Govindarajan 2000], which are related to (micro)evolution on the company level [H.E. Aldirch 1999; J.A.C. Baum, J.V. Singh 1994; J.A.C. Baum, H. Rao 2000]. In the process of formulating the basis of activity standards of dynamic competences, Helfat et al. used the notion of “evolutionary fitness’’. In their opinion, “evolutionary fitness refers to how well a dynamic capability enables an organization to make a living by creating extending, or modifying its resources base. The analogue to evolutionary fitness for operational capabilities is what has come to be called ‘external fit’. Evolutionary fitness depends on the external ‘selection’ environment: evolutionarily fit dynamic capabilities enable a firm to survive and perhaps grow, and to prosper in marketplace. Thus, the extent of evolutionary fitness depends on how well the dynamic capabilities of an or ganization match the context in which the organization operates’’ [C.E. Helfat, S. Finkelstein, W .Mitchell, M. Peteraf, H. Singh, D.J. Teece, S.G. Winter 2007, p. 7].. According to the authors, the capability of an organisation to match its activi ties depends on purposeful choices, therefore it should be the subject of a deci sion in creating strategy. While considering model strategic situations of an en terprise, Stańczyk-Hugiet defined fit as a reactive attitude towards weak selectors coming from the environment. Co-evolution of the environment and organisation (fitness) is, according to this author, a situation in which internal selectors which cause greater creativity are tightly connected with external selectors, which in turn increases vitality of an organization [E. Stańczyk-Hugiet 2013, p. 158-159]. Having accepted what has been mentioned above, the theory of evolution has been chosen as a theoretical base of the construction of model of creating strategy [M.S. Poole, A.H. Van de Ven 1995, p. 514]. Fig. 3.1 shows graphical presenta tion of the process, whereas concepts, which the model directly refers to, have been summed up in tab. 3.1.

36


Tab. 3.1. Theoretical concepts taken into account in the model Concept subject in (by the the literature authors) of the Order of units of analysis accepted in the concept Genealogical hierarchy Baum, Singh 1994

Polyphyletic group/species/ organisation/routine

Baum, Rao 2000

Organizational organisation routine form/

Volberda, Lewin 2003

capabilities/routine Competences/

Durand 2006

resources and capability Market/organisation/

Ecological hierarchy Ecosystem/ community/ population/ organisation/ workgroup/job Community/ population/ organisation/job Population/ company compri sing many units/unit Industry/particular company/ competitive advantage

Source: own research based on R. Durand 2006, p. 142.

3.4. Description of the model Specific conditionings of emerging markets create a unique context of strate gy-creating. This aspect was taken into consideration in the model with the intro duction of genealogical and ecological hierarchies [A.C. Baum, J.V. Singh 1994]. The genealogical hierarchy refers to institutional memory of actions which is reflected in preserving, wide spreading and organising information. It comprises individuals and bonds which last in time in an unchanged or similar form thanks to replication. The ecological hierarchy reflects economic structure and ways of integrating organisational systems. It comprises individuals, accumulated effects of differentiation and selection at a given time, as well as structural and behav ioural expression of individuals in a given genealogical class [J.A.C. Baum, H. Rao 2000, p. 2014]. The hierarchies mark levels of analysis, which help to capture a complex structure of conditionings in the model that have influence on the strategy. Three equally important levels of analysis have been taken into consideration in the structure of the model. Such multilevel view of the issue is even more justified due to the fact that in the face of complex decision conditionings enterprises are prone to reduce them (to what they consider the most important). It may lead to results of actions which are much more different from previous assumptions. The emerging market was accepted as the first level of the analysis. In the genealogical hierarchy, the market is a set of specific institutions which enable an organisation to conduct its business activity. Mechanisms which exist there allow (or not) the existing organisations to develop and new types of organisations to arise. While moving onto a higher level of synthesis of the genealogical hier archy, a reference should be made to various anthropological exchange models which mark better or worse matching forms of activity. It may be assumed that a definite group of markets (mature capitalist systems or countries undergoing transformation into the capitalist market economy model) have certain features in common, although on the level of particular markets there may be different institutions. Within the scope of the issue concerning strategies of international enterprises a distinction between emerging and mature markets was assumed to be an important evaluative criterion. While making an in-depth analysis on this


37

level, the relation between emerging markets and the system of the world (or re gional) economy as a system of a high order should be taken into account. In the market environment business organisations perform their activities. Or ganisations are defined as intentional social groups, which control resources, cre ate exchange relations, enter interactions with other individuals and use strategies in order to achieve their objectives [R. Durand 2006, p. 13]. These organisations include, among others, branches of MNC in the form of various FDIs. While making an in-depth analysis concerning an international enterprise, relations be tween a branch and superior unit should be taken into consideration. For the purpose of realising tasks organisational units create and use a bunch of resources/competences which constitute the lowest level of the analysis. Re sources are means used in activities which are characterised by particular features and which may perform various functions [E. Penrose 1959], a part of these re sources may be of strategic importance for an organization [J.B. Barney 2006]. Competences signify capability of members of an organisation to use available resources for the purpose of achieving objectives and optimising the potential of these resources. The objectives are set along with the process of evolutionary fit ness. In the in-depth analysis of the genealogical hierarchy, technological knowl edge, and even more general, scientific knowledge and its features understood as elements of resources and competences should also be considered. Knowledge, which partly belongs to the public area, and partly constitutes private property of an organisation (agents), modifies potential possibilities of the use of resources. Definite characteristics of identity deeply rooted in social and psychological de terminants of actions affect different perception and tendency of an organisation to use (or not) a particular resource. Competences constitute the foundation of products and services [J. Rokita 2003, pp. 68-72]. In the analysis made within the framework of the author’s own research, the fourth level (right below the third one), namely key products, was distinguished. The ecological hierarchy corresponds to the genealogical hierarchy but it is a manifestation of various types of activity of an organisation, at a particular time and in a particular place. The analysis in pairs (on the same level) provides a co gnitively attractive perspective. There are definite business (eco)systems within the market which appear and disappear in time. Maintaining “fitness” in case of an enterprise entails replication of the foregoing advantage resources or/and exploration of new ones. New strategic options are possible thanks to the appro priate configuration of resources (their definite features) and competences (which activate potential features of resources) which are supplemented by a particular enterprise within the framework of the types of international enterprise organi sation and in the context of a particular industry. It draws attention to the impor tance of selection criteria which force a change in the features of resources and competences (and not in the choice of the resources itself). Such change results in the increase or decrease of probability that an enterprise will be competitive and at the same time able to survive.


38

Ecological hierarchy

Genealogical hierarchy Global Market 13 10 9

Market Emerging

14

V

Industry

S

12

R 11

V

MNC

1 Particular enterprise

8 Unit (FDI)

7

S

3

2

V

6 5 of engagement Forms

R

4

S

Strategic initiatives

Bundle of competentions and resources

Fig. 3.1. Descriptive model of a process of MNC strategy in the context of emerging markets Source: own elaboration.

The attempt to depict a dynamic process of creating a strategy was made on the basis of a traditional VSR concept [H.W. Volberda, A.Y. Lewin 2003]. The presented structure was supplemented with occurring processes, which simulta neously are a mechanism of change ((co)evolution). What is important, processes taking place on each level of the analysis are crucial for the higher level and they result from those on the lower level. The differentiation on each level defines ef fective possibilities of selection which takes place on the ecological area. Such differentiation is a result of preservation of definite variants on a given and a lower level of the analysis. The basis of differentiation processes on the level of resources and competences at a given time is an accumulated effect of learning and preservation in an organisation definite routines backed by positive results [M. Zollo, S.G. Winter 2002]. Creating a strategy is an intra-organisational, but open process. Differentia tion on the organisation level signifies the occurrence of a bunch of resources, competences and routines of decision-making process available for a given en terprise. The accepted assumptions regarding the foundations of competing entail the choice of particular resources and types of exchange transactions. On the or ganisation level the strategy marks selection criteria of possible variants imposed “in advance’’ and independent strategic activities in complex organizations [R.A. Burgelman 2002, p. 94] – arrow No. (1) (hereinafter marked only with a number) in fig. 3.1. The existing differentiation of organisational variants is a consequence of choice of various resources and competences which have been positively verified by the members of an organisation in terms of the effects of activities (6). In the author’s own research, the observed relation concerned the importance of clearly defined rules governing activities which are undertaken within an organisation. The less clear and constant they are and the more independent the activities are,


39

the wider the scope of differentiation is. It is worth emphasizing that not all the initiatives are realised within an enterprise. Verification takes place on the basis of experience (4), the assessment of which depends on the quality of learning processes. A different process of routinization of experience, and therefore also repeatability of occurring models, took place in the enterprises in question de pending on the type of engagement. The more decision-based the processes were, the lower level of repeatability of models and the more flexible models of fitness were. Differentiation on this level is also a derivative of previously accepted solu tions within the framework of an official strategy (“in advance’’) (8). In the en terprises in question it was observed that the sources of the most flexible type of engagement were located on this level, that is, they concerned innovative organi sational structures. Eventually, a unique, appropriate for an enterprise scheme of organisation context arises (7). The strategy concerns also the selection within the scope of definite resources and competences which in accordance with strategic assumptions are supposed to enable realisation of definite strategic initiatives (2). Features of resources and competences differ depending on the accepted attitude towards the emerging op portunities and threats in the environment. Diversity results from a number of pos sible combinations of the existing and new resources (opportunities and threats connected with specific conditionings of the emerging markets were mostly taken into account in the conducted research) (5). The update of a bundle of resources takes place also by means of activities undertaken by the members of an organi sation (3). The activities are a result of previously made decisions, capabilities of individuals to formulate conclusions on the basis of experience. The selection corresponds to the strength and scope of connections of an organisational unit with its central office. Selection forces coming from the environment should also be taken into consideration. Proportional interest of selection factors, both exter nal and internal, on the level of a bundle of resources and competences depends on the accepted type of engagement of MNC. Making decisions regarding this proportion has been, on the basis of the author’s own research, identified as one of the strategic competences of an MNC. Conditions of a particular industry may eliminate particular resources (12) or organisations (11). Whereas, the context of a given industry is precised and it is one of many possible variants, within a given emerging market (10). The character of a given industry plays the role of a “filter” for various, specific conditions of an emerging market. Differentiation within the framework of an emerging market is a result of the presence of a definite variety of subjects and those newly-entering the industry who affect other players by means of interpreting institutions in their own way and undertaking activities on this basis (9). Within the scope of this process clear differences between engagement strategies arise [J. Cantwell, J.H. Dunning, S.M. Lundan 2010]. Less flexible types (adaptation) induce passive impact on the en vironment. In case of the most flexible ones (co-evolution), there is a pro-active way of entrepreneurial usage of the so called market imperfections. In the re searched cases, the differences concerned engagement involving MNC and the “pillars of the environment’’. In adaptation, first, there was fitting to the clearer regulatory pillar and the existing imperfections were compensated by personal relations of managers. In co-evolution MNC adjust to all dimensions - “gestalt’’.

40


In case of non-flexible types of engagement (avoidance), MNC equipped with market power put pro-active pressure on the environment in respect of the needs of their activity. In such cases too high barriers result in a forced degree of adjust ment or withdrawal (depending on the importance of the location). Ideological influence or political agreements are other factors which favour differentiation in the way of establishing and developing relations between organisations. Solutions which are positively verified in a given industry (e.g. cooperation in business groups) penetrate other industries and are preserved within the frame work of the market (13). The foregoing market institutions under the influence of experience of particular industries cause differentiation in the existing forms (14). The spill-over effect described in literature as a result of the presence of foreign investors is also a contributing factor.

3.5. Conclusion Results obtained by means of the conducted research enable to rephrase in several aspects the assumptions of the model deriving from the theory. Firstly, it was traditionally assumed that the conditionings of the environment are to a large extent given, whereas organisational fit may or may not be compliant with them. It is assumed that the better the fitness is, the better the results are. In cases of co evolution which is most open to the conditions of the emerging markets, there is a possibility to establish social systems. Changes take place on the basis of the im pact made by an enterprise and a wide circle of partners. An enterprise is shaped by the environment and it has the possibility to shape the environment, too. In the light of the obtained results of the research, fitness of an organisational unit of an MNC is a more complex issue (lack of fitness on one level compensated by fitness on another one may constitute a mechanism which leads to achievement of an advantage). Secondly, the differentiation between external fitness, in which external envi ronment factors are a criterion of optimization of strategic decisions, and inter nal fitness (correspondence between decisions made in the whole organisation). Although in managing an organisation the influence of changes in the external environment on the update of internal criteria still poses a poorly recognized problem, in case of the researched MNC, combining processes taking place both in external and internal environment, as well as between initiatives made within the framework of current and future sources of success have been identified as strategic competences. Effectiveness of these competences is supported by com petences which are about combination of various types of relations/transactions. Thirdly, the initial conditions of applying adaptation concept in strategy are about establishing the nature of the environment (e.g. degree of its changeabil ity), nature of the reaction of an organisation to environmental stimuli, demar cating changes taking place within an organisation and in its environment and establishing the nature of relations between units engaged in the process of ad aptation. However, in the researched MNC, in case of the most flexible type of engagement, the lack of the ex ante knowledge about the environment was a motive for development of activities, the borders of an organisation depended on the criterion used for their establishment (these may include formal relationships, public relations, business contacts personally developed by managers, relations


41

with a wider circle of partners). The assumptions on the settlement of borders of an organisation were the result of experiences and competences of managers. The descriptive model which has been presented concerns strategies of MNC created on the level of a foreign emerging market. The analysis of the way of renewing the sources of advantage of an MNC under the influence of experiences accumulated on the emerging markets may be pointed out as an interesting direc tion of further research. Another interesting matter is a perspective of referring the obtained results to enterprises different from those which included in their scope of activities markets undergoing transformation for political or economic reasons. Experiences from the last decade provide the basis for the assumption that the “emergence’’ of markets is not a one-way process. Markets regarded as mature (e.g. Spain or Italy at the time of the recent crisis) may show signs char acteristic for emerging markets. Therefore, it may be assumed that whether a given market fulfils criteria reserved for the group of emerging markets depends on the point of time at which the analysis is being made. Some markets may only be treated as emerging ones at a definite point of time, whereas others may show such features in the longer or shorter period of time. In this context, the environ ment of emerging markets seems to be an interesting research laboratory which facilitates the review of an unconventional attitude towards strategy in a dynamic and complex environment.

3.6. References Aldrich H.E., Organizations Evolving, Sage, London 1999 Barney J.B., Gaining and Sustaining Competitive Advantage, Prentice-Hall, En glewood Cliffs 2006 Bartlett Ch.A., Ghoshal S., Managing Across Borders. The Transnational Solu tion, Harvard Business School Press, Boston 1989 Baum J.A.C., Rao H, Evolutionary Dynamic of Organizational Populations and Communities [in:] Handbook of Organizational Change and Innovation, [ed:] M.S. Poole, A.H. Van de Vena, Oxford University Press, Oxford 2000 Baum J.A.C., Singh J.V, Organizational Hierarchies and Evolutionary Process es: Some Reflections on a Theory of Organizational Evolution, [in:] Evolu tionary Dynamics of Organizations, Oxford University Press, Oxford 1994 Baum J.A.C., Singh J.V, Organizational Niches and the Dynamics of Organiza tional Mortality, “American Journal of Sociology” 1994, Vol. 100 Burgelman R.A, Strategy is Destiny: How Strategy – Making Shapes A Com pany’s Future, Free Press, New York 2002 Cantwell J., Dunning J.H., Lundan S.M, An Evolutionary Approach to Under standing International Business Activity: The Co-Evolution of MNEs and the Institutional Environment, “Journal of International Business Studies” 2010, Vol. 41 Chandler A.S, Strategy and Structure, MIT Press, Cambridge 1962 Durand R, Organizational Evolution and Strategic Management, Sage, London, Thousand Oaks, New Delhi 2006 Emerging Economy Report, 2008, http://www.emergingeconomyreport.com Gupta A.K., Govindarajan V, Knowledge Flows Within Multinational Corpora tions, “Strategic Management Journal” 2000, Vol. 21

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Helfat C.E., Finkelstein S., Mitchell W., Peteraf M., Singh H., Teece D.J., Winter S.G, Dynamic Capabilities: Understanding Strategic Change in Organiza tions, Blackwell, Oxford 2007 Hoskisson R.E., Eden L., Lau C.M., Wright M., Strategy in Emerging Econo mies, “Academy of Management Journal” 2000, Vol. 43 Khanna T., Palepu K.G., Why Focused Strategies May Be Wrong for Emerging Markets, “Harvard Business Review” 1997, Vol. 75 Khanna T., Palepu K.G., Winning in EmergingMarkets: A Road Map for Strategy and Execution, Harvard Press, Boston, Massachusetts 2010 Lawrence P., Lorsch J., Differentiation and Integration in Complex Organiza tions, “Administrative Science Quarterly” 1967, Vol. 12 McKelvey B, Quasi-Natural Organization Science, “Organization Science” 1997, Vol. 8 Penrose E., The Theory ofGrowth ofthe Firm, Basil Blackwell, Oxford 1959 Porter M.E., What is Strategy? “Harvard Business Review” 1996, Nov/Dec Rokita J, Organizacja ucząca się, Wydawnictwo Akademii Ekonomicznej w Katowicach, Katowice 2003 Stańczyk-Hugiet E, Dynamika strategiczna w ujęciu ewolucyjnym, Wydawnict wo Uniwersytetu Ekonomicznego we Wrocławiu, Wrocław 2013 Van de VenA.H., Poole M.S., Explaining Development and Change in Organiza tions, “Academy of Management Review” 1995, Vol. 20 Volberda H.W. Lewin A.Y., Co–Evolutionary Dynamics Within and Between Firms: From Evolution to Co-evolution, “Journal of Management Studies” 2003, Vol. 40 Zollo M., Winter S.G., Deliberate Learning and the Evolution of Dynamic Capa bilities, “Organization Science” 2002, Vol. 13

Czesław Mesjasz1

4. The Meaning of Risk in Negotiation2 4.1. Theoretical considerations The term “risk” has become one of most frequently used and at the same time misused and abused concepts in modern society. Although the concept of risk society was already promulgated in the book “Risk Society” by U. Beck [1986, 1992, 1999, 2004] and in his later writings, the dramatic events in politics, e.g. the terrorist attack of 11 September 2001, natural disasters, e.g. tsunami in 2004, failures of corporate governance, e.g. the Enron affair and increasing uncertainty of business environment reflected in the term turbulence have made risk one of the key issue of contemporary politics, economics and management. The aim of the chapter is to present a survey of interpretations of risk applied in theory and practice of negotiation with a special attention given to negotiation in broadly defined management. The concept of risk is relatively well-grounded in formal theories of decision making and negotiation. Risk in negotiating can be viewed both as an external factor of negotiating as well as an issue in the negotia tion process. Theoretical considerations are based upon the following concepts: agency relation, consequences of information asymmetry, contracting (including incomplete contracts), risk sharing and negotiator’s attitudes towards risk, risk communication and negotiation of the meaning of risk3.

4.2. Definitions of risk The terms uncertainty and risk reflect relations between the past, the present and the future. Uncertainty is the basic concept mirroring the future as unknown and unpredictable. In logical terms uncertainty means the state of not knowing whether a proposition is true or false. Risk, hazard, danger and threat are norma tive terms, usually linked to negative consequences of possible future events. The term risk derives from Italian and has its roots in economics. It derives from the Italian ‘risco’ or ‘rischio’ which means both the ‘danger’ that one is suc cumbing to and the ‘venture’ that one is embarking [N. Gregersen 2004, p. 22]. Cracow University of Economics. The chapter has been prepared in the framework of research project funded by the National Scien ce Centre, decision no. DEC-2011/03/B/HS4/03585. 3 Since in English language terminology negotiation is used interchangeably with bargaining, this approach is also preserved in the chapter. However, it must be taken into account that negotiation may in some cases include also other stages, e.g. preparations or information gathering while bar gaining concerns but the process of exchanging offers and responses. 1 2

44


According to E. Wit [1997], the concept of risk was first employed in the fifteenth century merchant vocabulary in Central and Western Europe, where it stood for financial speculation. The concept developed in the Italian city states, probably from the verb rischiare, meaning to endanger or to wager. The verb itself originates, via risicare, from the Greek riza, (riza), which means cliff. Risicare came to mean to go around the cliff, much in the same sense as the noun clipper is intended, and consequently they acquired their contempo rary meaning rischiare, to speculate. In this sense risk means rather choice than fate. Even if this etymology is uncertain, the concept of risk did come up in the Renaissance mercantile world. From this sphere, the word moved slowly into the everyday language in the 16th Century into the Latin languages [N. Gregersen 2004, p. 23]. Until the nineteenth century the use of risk was exclusively in the domain of economics. During the same period there was an important shift of meaning. Whereas previously the idea of risk had been connected with the hope and expec tation of the one who financed the operation in the individual who executed it, in the course of the seventeenth and eighteenth century the newly gained under standing of probabilities and mathematical expectations transformed the concept of risk into long run average wins and losses away from individuality [E.J. Wit 1997]. Similarly as for other concepts of social sciences, the divide between objec tive and subjective (probabilistic and contextualist) can be made in the discourse on risk. The sense of this divide has been described by I. Kelman [2003, p. 6-7]: “Physical scientists sought to quantify, to measure, to objectify, to calculate, to scientificify, to nail down risk. Risk can, and more importantly should, be made precise, exact, and accurate. Social scientists viewed risk as contextual and as a cultural construction. The act of measuring, thinking about, and seeking to under stand and manage risk changes the risk. Risk definition depends on who defines. “…Risk becomes objective and exact within the culture which defines it. But that axiom, that fundamental geometry of risk, may be challenged and redefined. Risk is thus contextual and cultural, dependent upon the initial assumptions which can never be proved or disproved”. Problems arising from the dilemma objectivity vs. subjectivity of risk have been discussed by other authors. K. Shrader-Frechette [1991] has distinguished three philosophies about risk evaluation: cultural relativism, naive positivism, and scientific proceduralism. Cultural roots of interpretation of risk have been also exposed by M. Douglas and A. Wildawsky [1982] who proved that state ments about risk are as much (and often more) a reflection of deep social structure as they represent the world. It is worthwhile to underline that in most cases, and in this chapter as well, the subjectivist (constructivist) views do not deny facts about risk in general, and certainly do not entail relativism with respect to specific well-characterized ele ments of risk, such as, for example, the statistical probability of events. Doubts about the very sense of probability are connected with deeper epistemological interpretations. Since risk is defined subjectively then definitions of risk depend on specific applications and situational contexts. In each area of application, the term risk as

45

The Meaning of Risk in Negotiation

“qualified” aspect of uncertainty has its own characteristics. In a common sense interpretation risk is related to the expected losses which can be caused by a risky event and to the probability of this event. The harsher the loss and the more likely the event, the worse the risk. Tab. 4.1. Theoretical approaches to risk Epistemology Type of theory tively may Realism independently definitions, ce Risk that isassessed can an objective be butmeasured of disturbansocial negabe Economicssciences Technical and finance

Key questions What risks exist? How to measure (calculate) and manage risks?

biased by subjective perceptions in the public realm Weak constructionism

through objective (M. (N. self-observing sonal, and Riskmediated dangers builds social, thaton are cultural, processes perceived peror Luhmann) “Risk Phenomenology Symbolic Attribution Douglas) society” Theory theory theory

What is our attitu de to dangers? How do we understand risk in today’s society? How and why do we select risks among the multi ple dangers? How do we observe our own risk-decisions?

Strong (Radicalconstructionism tivism) construc-

(M. Nothing are decisions fabricated isand a risk, negotiations by social but risks Governmentalist theory Foucault)

Why and how do we fabricate particular risks?

Source: own research based upon P. Bernstein 1996; M. Douglas,A. Wildavsky 1982; N. Gregersen 2004, p. 24; F. Knight 1921; J. M. Keynes 1937; N. Luhmann 1990, 1998.

4.3. Risk in negotiation: Conceptual framework and basic ideas Negotiation can be treated as an interactive decision making process thus all risk-related issues of theory and practice of decision making are also valid in negotiating. But they are only more complex and enhanced since they concern not a single actor but minimum two or more actors and their interactions. It gives in result a specific synergy and dissynergy. At the same time negotiation can be also seen as an instrument of risk management in majority of conditions where conflicts occur. Thus analysis of the role of risk in negotiation must consider both external and internal factors. The first link between risk and negotiation is resulting from the fact that nego tiation (bargaining) is always based upon prediction or anticipation of the other

46


side’s behaviour (action). Therefore risk is always, either directly or indirectly an issue in negotiating (bargaining). The second source of risk in negotiation derives from external social, political, economic and natural conditions. In eco nomic terms risk is depending on externalities associated from others’ behaviour as well as from changes in environment. The third link between risk and negotiat ing is a consequence of new perceptions of risk in contemporary society depicted as “reflexive modernity”. Relations between risk and negotiating can be analysed in a framework of risk management including the following areas: ▪ interpretations of risk in negotiation, ▪ individual risk vs. collective risk in negotiating, ▪ risk and distribution of information in negotiation, ▪ consequences of different negotiators’ attitudes towards risk, ▪ risk-sharing (risk management), ▪ risk communication in negotiating, ▪ impact of risk conditions, including extreme situations, upon the process of negotiating, behaviour of negotiators and outcome of negotiating. The last item of the above typology requires further explanation. The term risk can be described in a more detailed way allowing for distinguishing various levels of risk intensity both in qualitative and quantitative terms. In negotiation theory and in applications two levels of impact of the risk can be introduced – normal (natural, tolerable?) risk and extreme risk conditions. Relations between risk and negotiation can be analysed at several levels of rigor and precision: ▪ rigorous mathematical decision making and negotiation models based upon game theory, complexity models and computer simulation (information asymme try, risk sharing, agency relationship and agency problem), ▪ descriptive behavioural models partly relating to mathematical modelling (analogies and metaphors), ▪ deepened psychological and sociological considerations using both above methods, ▪ narratives, based predominantly upon common sense descriptions, explana tions of causal links, and if not predictions, then at least attempts at drawing more general conclusions. Since any unique definition of risk cannot be elaborated, therefore the same doubt concerns the risk in negotiation (bargaining). Obviously the answer at the basic level is quite simple, there are several examples of discourse on risk in ne gotiating, e.g. risk sharing or attitudes towards risk. But a meta-level approach to the risk issues in negotiation leads to several basic questions. First of all the difference between negotiations and bargaining must be ex posed. Although in literature, and especially in mathematically-oriented writings, both terms are used interchangeably but in practice negotiation may include pre paratory phases, e.g. data gathering, preliminary contacts, etc. Bargaining in such case is but a part of the entire process of negotiating. Thus it seems necessary to declare clearly whether the risk refers only to bargaining or to the entire negotia tion process.

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THREAT DANGER HAZARD RISK

(external internal) interests, norms, - positions, -(individual, attitudes - perception - vulnerabilities contextual) ACTORI values, and towards interaction of risks risk

(meaning negotiation Risk Risk communication substance) and

ACTOR II - positions, interests, norms, vales - perception of risks (external and internal) - attitudes towards risk - vulnerabilities (individual, interaction contextual)

RISK MANAGEMENT

Fig. 4.1. Risk in negotiation – a conceptual framework Source: own research.

Secondly, it must be stressed that risk is always negotiated twice. First, the parties negotiate the meaning (interpretation) of the risk. If this is agreed, then they begin to negotiate the “real”, or “actual” risk. Obviously the dichotomy “ac tual” risk versus “perceived” risk must be considered with a great care. If the risk analysis concerns entire negotiation process, then the impact of ex ternal threats (risk, danger and hazard) must be referred to phases of the process. So the following risks can be distinguished: ▪ risk in preparatory phases of negotiation, ▪ risk in bargaining phase, ▪ risk in the closing phase, ▪ risk in implementation and monitoring. In this chapter a convention is proposed that risk in bargaining and risk in negotiation are treated interchangeably. In most cases attention in analysis is fo cused upon approaches to risk in the process of bargaining. Only in some exam ples risk in negotiation refers to all phases of the negotiating process. Another doubt concerning risk in negotiation is associated with its impact upon the nego tiators. Is the risk threatening only one negotiator, or all parties involved. How to

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define those risks – in an objective, or in a subjective way? Which definitions of risk can be applied? A rank of other questions may be asked. Since negotiation is an interactive decision making process then it is worthwhile to study how individual risks of negotiators translate into collective risk and vice versa? How do the external risks (threats, dangers and hazards) translate into specific patterns of behaviour of ne gotiators? How do they change goals and methods of negotiating? In contemporary writings on risk in negotiating attention is paid rather to “classical” issues such as attitudes towards risk or risk sharing. In the second stream a specific domination of post-modernist interpretations can be observed. Influence of risk upon negotiation and risk in negotiation is just an effect of dis course. It may be even stated that in postmodernist, or constructivist way, the meaning of risk in negotiation is also negotiated in inter-subjective discourse. Such a situation immediately brings about the challenge of efficiency of commu nication about risk and challenges of efficiency meta-level discourse – what do we mean when discussing risk in negotiation? The situation seems simple in the case of quantitative considerations. In such case risk in negotiation is in some sense a derivative concept from risk in decision theory. Obviously in that case, the challenges of aggregation are emerging. Many unsolved and likely unsolvable problems arise in qualitative discourse on risk in negotiation. Difficulties which are already known from risk-oriented discourse (objective vs. constructivist) are deepened because of complexity resulting from a number of participants. Similar problems are also coming to the fore if the impact of external risks (threats, hazards, dangers, etc.) upon the process of negotiating is taken into ac count. A question may be asked – how the external risky determinants of the process of negotiation translate into the negotiated issues?

4.4. Distribution of information in negotiation and risk (1) Asymmetry of information In traditional approach to market and negotiation, it was assumed that all par ties of transaction had access to the same information or can easily, and without any additional costs obtains that information4. It was proved that such an assump tion was too simple and superficial. More realist assumption is that in transac tions and subsequently in bargaining (negotiation) information is not distributed equally and information asymmetry affects the process before beginning and af ter completion. Information asymmetry occurs when one party to a transaction has more or better information than the other party. This information is called private and usu ally it refers aspects critical to reaching agreement, such as a party’s reservation price. Information asymmetry is linked with incomplete and imperfect information. Complete information is a term used in economics and game theory to describe an economic situation or game in which knowledge about other market partici Due to the scope of the chapter any discussion about the sense of information and com munication in negotiation are left to further considerations.

4


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pants or players is available to all participants. Every player knows the payoffs and strategies available to other players. They are both elements common knowl edge in negotiation. Complete information is one of the theoretical pre-conditions of an efficient perfectly competitive market. In a sense it is a requirement of the assumption also made in economic theory that market participants act rationally. If a game is not of complete information, then the individual players would not be able to predict the effect their actions would have on the others players (even if the actor presumed other players would act rationally). Informational differences provide an appealing explanation for bargaining in efficiencies. If information relevant to the negotiation is privately held, the parties must learn about each other before they can identify suitable settlement terms. This learning is difficult because of incentives to misrepresent private informa tion. Bargainers may have to engage in costly disputes to signal credibly the strength of their bargaining positions. Although similar, complete and perfect information are not identical. Com plete information refers to a state of knowledge about the structure of the game, while not necessarily having knowledge inside the game. So for example, one may have complete information in the context of a game, e.g. Prisoner’s Di lemma, but nonetheless this is a game of imperfect information since one does not know the action of the other player. Despite this distinction, it is useful to remember that any game of incomplete information can be transformed, termi nology-wise, into a game of imperfect information. One simply includes nature as a player in the game and conditions payoffs on nature’s unknown moves [D. Fudenberg, J. Tirole 1991, pp. 209-210]. Information asymmetry was introduced by K. Arrow [1963] and later devel oped by G. Akerlof [1970] in his pioneering work The Market for Lemons, and M. Rothschild and J. Stiglitz [1976]. It may result both from imperfect and in complete information. Asymmetry of information may occur before the transaction is accomplished, in the moment of signing contract – situation ex ante and after the transaction (contract signed) – situation ex post. In the ex ante situation (hidden information) the main consequence is adverse selection, while moral hazard may appear after the transaction (ex post, hidden action). In adverse selection models the ignorant party lacks information while negoti ating an agreed understanding of or contract to the transaction, whereas in moral hazard the ignorant party lacks information about performance of the agreed upon transaction or lacks the ability to retaliate for a breach of the agreement. An example of moral hazard is when people are more likely to behave reck lessly if insured, either because the insurer cannot observe this behaviour or can not effectively retaliate against it, for example by failing to renew the insurance. An example of adverse selection is when people who are high risk are more likely to buy insurance, because the insurance company cannot effectively discriminate against them, usually due to lack of information about the particular individual’s risk but also sometimes by force of law or other constraints. Typically it is the seller that knows more about the product than the buyer, or the company’s management knows better its situation than the credit giving bank.

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However, in some cases it is possible for the reverse to be true: for the buyer to know more than the seller (reversed asymmetric information). The situations where the seller usually has better information than the buy er are numerous but include used-car salespeople, mortgage brokers and loan originators, stockbrokers, real estate agents, and life insurance transactions. The examples where the buyer usually has better information than the seller include estate sales as specified in a last will and testament, sales of old art pieces without prior professional assessment of their value, or health insurance consumers of various risk levels. In contracting (negotiation, bargaining and games) one-sided information asymmetry it is not the only case. In practice there are many situations where several negotiators (players, contracting parties) may possess relevant private in formation or be called to take hidden actions. Such situations are thus influenced by multilateral asymmetric information. In the one-sided private information case the negotiation problem (contract design problem) reduces to a problem of controlling the informed party’s response, while in the multilateral situation the negotiation problem (contracting problem) becomes one of strategic behaviour of several parties interacting with each other. The negotiation (contract design) becomes one of designing a game with incomplete information [P. Bolton, M. Dewatripont 2005, p. 25]. The impact of asymmetry of information upon negotiating is considered in three areas: ▪ social risk management, ▪ formal models of negotiating under information asymmetry, ▪ qualitative interpretations of asymmetry of information in negotiation.

(2) Asymmetry of information – mathematical and qualitative analysis In the first area of analysis, which can be called formal, information asymme try is taken into account in mathematical modelling of negotiation and contract ing, predominantly with the use of game theory. A central question in economics is understanding the difficulties that parties have in reaching agreements satis fying their expectations (goals). Informational differences provide an appealing explanation for bargaining inefficiencies. In the second area which is more of qualitative character, asymmetry of in formation and its consequences are treated as an analogies and metaphors. Such terms as negative selection, moral hazards are treated not as the description of mathematical models but as utterances relevant to some real situations. In this case the both some operational and broader ethical issues are taken into account: ▪ truth, lies and deception in negotiation, ▪ trust in negotiating, its abuses and limitations, ▪ ethical consequences of deception in negotiation. As to explain better the impact of uneven distribution of information upon negotiating the following issues have to be taken into account in both quantitative and qualitative framework: attitudes towards risk, risk sharing, risk and agency relationship.


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4.5. Attitudes towards risk Quantitative interpretations of risk allows for describing behaviour of eco nomic actors under different conditions of uncertainty. Attitudes towards risk determine behaviour of actors involved in any negotiation, and in its bargaining phase in particular. More advanced analysis of attitudes towards risk is deriv ing from von Neumann-Morgenstern expected utility hypothesis and is widely described in economic literature. Attitudes towards risk are associated with cur vature of utility function. Risk aversion is reflected by concave utility function, risk proneness (proclivity, risk-loving) by convex utility function and risk-neutral attitude is illustrated with linear utility function. Prospect theory was developed by D. Kahneman and A. Tversky [1979] as a psychologically realistic alternative to expected utility theory. It allows one to de scribe how people make choices in situations where they have to decide between alternatives that involve risk. Using the term “prospect” to refer to what can be called lotteries or gambles, (i.e. a set of outcomes with a probability distribution over them). The central analytic assumption of prospect theory is that individuals are more sensitive to relative changes than to absolute changes, which is termed reference point. D. Kahnemann and A. Tversky also state that where winning is possible but not probable, i.e. when probabilities are low, most people choose the prospect that offers the larger gain. They also found strong evidence of what they referred to as the reflection effect. This led them to conclude that when decision problems involve not just possible gains, but also possible losses, people’s preferences over negative pros pects are more often than not a mirror image of their preferences over positive prospects. Simply put – while they are risk-averse over prospects involving gains, people become risk-loving over prospects involving losses. These are an expla nation for the fact that people, e.g. simultaneously buy lottery tickets and insur ances, but still invest money conservatively An important implication of prospect theory is, that the way economic agents subjectively frame an outcome or transaction in their mind, affects the utility they expect or receive. Framing and prospect theory have been applied to a diverse range of situations which appear inconsistent with standard economic rational ity. A new contribution of prospect theory to negotiation lies in the conclusion that utility might be reference based, in contrast with additive utility functions underlying much of neo-classical economics. This means people consider not only the value they receive, but also the value received by others. This hypothesis is consistent with psychological research into happiness, which finds subjective measures of wellbeing are relatively stable over time, even in the face of large increases in the standard of living. Since its inception prospect theory has been widely used in modelling various conflict and negotiation situation involving risk [W. Boettcher 1995; J. Levy 1997; R. McDermott 1998, V. Smith 2000].

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4.6. Risk sharing in negotiation Behaviour of decision makers in uncertain circumstances has become one of most important issues in economic theory. Formal models of decisions and con tracting under uncertainty have also been transferred to negotiation and contract theory. Complex exchange activities like the allocation and sharing of risk began to be analysed formally along with the introduction of the idea of “state-contingent” commodities by K. Arrow [1964] and G. Debreu [1959] and the formulation of a theory of “choice under uncertainty” by J. von Neumann and O. Morgenstern [1944]. The notion of exchange of state-contingent commodities gave a precise meaning to the exchange and allocation of risk [P. Bolton, M. Dewatripont 2005, p. 1]. As it has been mentioned in the previous part, preferences orderings over lotteries had provided a formal representation of attitudes towards risk and pref erences for risk taking. As to analyse the question of optimal risk allocation formally, the concept of uncertainty must be applied. It can be accomplished by introduction of the notions of a state of nature, a state space, and a state-contingent commodity. K. Arrow [1964] and G. Debreu [1959] were the first to explore this approach. They define a state of nature as any possible future event that might affect an individu al’s utility. The state space is then simply the set of all possible future events, and a state-contingent commodity is a good that is redefined to be a new commodity in every different state of nature. Defining all these notions is not any special obstacle. The important concep tual leap is to suppose that rational individuals are able to form a complete de scription of all possible future events, and that all have the same description of the state space. Once this common description is determined, it is possible to represent a simple insurance contract in an Edgeworth box [P. Bolton, M. De watripont 2005, p. 8]. Risk sharing can be described on the basis of behaviour of actors (decision makers, negotiators), who have to make a choice between gambling and choice with certainty concerning state-contingent commodity (commodities). Attitudes towards risk are playing the crucial role in analysis of behaviour of actors in ne gotiation. In consequence, patterns of risk sharing and its efficiency depend on the actors’ (negotiators’) attitudes towards risk. It is usually assumed in economic analysis that individuals are risk averse (or possibly risk neutral) (they have concave or linear utility function). That is, when they make economic decisions that influence their wealth they prefer to receive the expected value of a gamble instead of taking the gamble. Risk aversion can affect our basic choices from among alternative actions, leading us to choose actions that do not maximize our expected wealth in order to avoid some risk. In addition, risk aversion frequently leads us to contract with others to share the risks that we face. Risk sharing in economics can be illustrated with several examples. Insurance is an important form of risk sharing. The insurance company acts as an intermedi ary between large groups of people and businesses who agree to share in covering individual losses. Individually they are risk averse, but as a large group dealing


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with independent losses they act as if they are risk neutral – since there is really no risk in the aggregate. The stock market is another form of risk sharing. Individuals provide capital to firms whose returns are risky. By spreading the ownership among large num bers of investors, no one investor bears much firm-specific risk. While insurance and the issuance of common stock are widely used methods of risk sharing, there are many other situations in which small groups of individu als or firms contract to share risks. In these cases, the risk aversion of the con tracting individuals has a profound effect on the optimal form of the risk sharing contract. Risk sharing can be assessed from the point of view of Pareto improvement and Pareto efficiency. Different attitudes towards risk lead to different cases of Pareto efficiency. If one of the partners is risk neutral, then that partner should bear all risk if the partnership agreement is to be Pareto efficient. This follows from the fact that for the risk neutral partner the certainty equivalent for any gamble is equal to the expected payoff from that gamble, whereas for the risk averse partner the certainty equivalent is less than the expected payoff. Hence, it is always Pareto efficient for the risk averse partner to transfer any gamble to the risk neutral partner. First models of risk sharing were made upon an assumption of equal informa tion. After developing of theory of asymmetric information it was observed that risk sharing depends on information known to actors (negotiators). In the basic model of risk sharing negotiators have the same information. In an extended ap proach various types of information asymmetry can be identified – one-sided and two-sided. Similarly each part can be either principal or agent. Information asymmetry has thus an impact both on patterns of risk sharing as well as upon its Pareto efficiency. Risk sharing in negotiation (contracting) should in such cases include also consequences of information asymmetry – adverse selection and moral hazard as well as methods of their elimination and/or control. The situation is becoming even more complex when the parties sequentially exchange offers in bargaining [L. Ausubel et al. 2002]. Although risk sharing is a concept deriving from mathematical modelling, in general terms two approaches to risk sharing in negotiation can be distinguished: ▪ formal, based upon economic considerations (shape of the utility curve), ▪ behavioural, relating to attitudes, decisions and actions undertaken by parts involved in negotiation. In a behavioural interpretation, risk sharing can be treated as decision making about bearing responsibility for consequences of any negative course of events resulting from a negotiated contract. The decision can be made by negotiators in a rank of ways: ▪ negotiated decision about sharing responsibility, ▪ transferring the risk onto one part (consciously accepted or imposed by ano ther part). The cases of risk transfer require additional explanation. In the first situation, one part fully accepts higher risk as a part of the deal. Such a situation occurs, for example, when a company delivering goods to the retailer accepts to bear all risk as the price for possibility to enter a new distribution channel.

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In the second situation one part, due to its insufficient negotiating competen cies and/or dishonesty of the other part has to deal with a higher than expected and acceptable levels of risk expressed in consequences of negative course of events. Behavioural approach to risk sharing is useful in the situations where the risk cannot be defined in a simple way and when the actors (negotiators) may have different risk perceptions.

4.7. Agency, contracts and risk Problems with uneven distribution of information and differing attitudes to wards risk are described in two economic theories– agency theory and incom plete contract theory. They are frequently applied in modern economic theory including formal modelling of negotiation.

(1) Agency relation, agency problem and agency theory In a traditionally understood negotiation (bargaining) differences between partners are resulting from their inherent parts and not from their relations. There fore even if they may have a different bargaining power they treat themselves as equals. A different situation emerges when one partner can give orders to the other one. Such a situation is called agency relation. This relation is widely ap plied in economic literature in description and analysis of relations between own ers and managers (corporate governance/corporate control). It can be also used in analysing relations between employers and employees. The principal-agent problem echoes the difficulties that arise under conditions of incomplete and asymmetric information when a principal hires an agent. Vari ous mechanisms may be used to try to align the interests of the agent with those of the principal, such as piece rates/commissions, profit sharing, efficiency wages, the agent posting a bond, or fear of firing. The principal-agent problem is found in most employer/employee relationships, for example, when stockholders hire top executives of corporations. The principal-agent problem arises when a principal compensates an agent for performing certain acts that are useful to the principal and costly to the agent, and where there are elements of the performance that are costly to observe. This is the case to some extent for all contracts that are written in a world of informa tion asymmetry, uncertainty and risk. Here, principals do not know enough about whether (or to what extent) a contract has been satisfied. The solution to this information problem – closely related to the moral hazard problem – is to ensure the provision of appropriate incentives so agents act in the way principals wish. In terms of game theory, it involves changing the rules of the game so that the self-interested rational choices of the agent coincide with what the principal desires. Different attitudes towards risk of the principal and of the agent are a basic at tribute of agency relations. In the case of corporate governance it is assumed that the owners (shareholders, principals) are risk neutral, while managers (agents) are risk averse. In agency relations theory a special place is taken by a special class of games of incomplete information knows as games of static mechanism design. In all of these cases, there is a “principal” who would like to condition his/her actions on some information which is privately known by the other player


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called “agent”5. The principal could simply ask the agent his/her their informa tion, but he/she will not report it truthfully unless the principal gives him/her an incentive to do so, either by monetary payments or with some other instruments that he/she controls. Since providing these incentives is costly, the principal faces a trade-off that often results in inefficient allocation. Mechanism design is usually studied as a three-step game of incomplete infor mation, where the agent’s types – e.g. willingness to pay – are private informa tion. In step 1, the principal designs a “mechanism”, or “contract”, or “incentive scheme”. A mechanism is a game in which the agents send costless messages, and an “allocation” that depends on the realized message. On step 2, the agent accepts or rejects the mechanism. An agent who rejects the mechanism gets some exogenously specified “reservation utility”. In step 3, the agent who accepts the mechanism plays the game specified by the mechanism [D. Fudenberg, J. Tirole 1991, p. 243-244].

(2) Incomplete contracts Advanced mathematical concepts of risk in negotiation are deriving from the incomplete contract theory (ICT) developed since the late 1980s [D. Grossman, O. Hart 1986; O. Hart, J. Moore 1988; P. Bolton, M. Dewatripont 2005]. The literature on that topic sets about formalizing and extending some of the insights from transaction cost theory [O. Williamson, 1985]6. Two assumptions are axiomatic for the ICT. The first closely follows transac tion cost theory (TCT) in that many important investments are observable ex post by economic agents close to a trade, but they are not verifiable in a court of law. In the jargon, they are not contractible. In particular, a contract cannot condition prices (or anything else) on ex post investments. The second is that parties to a contract cannot prevent themselves from renegotiating the terms if it is mutually beneficial to do so [O. Hart, J. Moore 1988]. Anticipating this, the parties use the contract in the context of an effective legal system to frame these renegotiations. The name, incomplete contract theory suggests that the theory’s main concern is to consider the limitations of contracts that fail to specify not only investment levels, but also many of the other contingencies that a complete contract might include. The reason for this failure might be due to bounded rationality such that some contingencies cannot be imagined, or to the cost of writing complex contracts. The theory might then ask, for example: how efficient are simple con tracts that can specify, at most, only one price, one product specification and one quantity? An efficient contract is one that gives the optimal incentives for both investment and trade. This characterization of the approach suggests a fairly ad hoc limit on the ability of rational agents to write contracts. However, in practice, much of the literature has avoided this potential criticism (or aspect of reality, depending on your point of view) by adopting one of two directions that finesse the need to specify arbitrary restrictions on the content of contracts. The first direction asks: what is the minimum that must be written into a con tract that would allow it to achieve efficiency in a particular, well specified game, In general case mechanism may involve several agents. Negotiation is an important element of contractual interpretation of economy. In such an appro ach contracts can be viewed as “the DNA of economic life” [S. Hejeebu 2004].

5

6


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defined according to the types of investment, nature of uncertainty, ex post bar gaining procedures, etc. If the answer is that a very simple contract can achieve efficiency, then one efficient contract has been identified. There may be a mul titude of other equally efficient contracts, but the one identified by the model ler typically has the added virtue of simplicity. Since it is efficient, it might be thought to be a misnomer to call such a contract ‘incomplete’. The alternative direction asks: why can no contract achieve efficiency in a par ticular situation? In essence, there is little to distinguish this approach formally from the more traditional complete contract agency theory, except ICT puts great stress on the constraints that renegotiation places on what can and cannot be writ ten into a contract. Date 0

Date 1

Date 2

Negotiation

Buyer and Seller Investment sign a contract

Date 3

Date 4

Random state realized

Renegotiation of contract

Date 5

Trade

Fig. 4.2. Contract time line with negotiation and renegotiation Source: own research.

4.8. Risk communication and risk negotiation Variety of approaches to risk (probabilist-contextualist or objective-subjec tive) bring about an important challenge how the attributes o risky circumstances and risky negotiating issues are communicated and how their interpretation is agreed by the parts involved. Therefore in negotiation it is always necessary to communicate the risk and to negotiate its meaning and potential costs and com pensation.

(1) Risk communication In general terms risk communication is an important in relations between so cial groups. Risk communication involves the two-way exchange of information, or better exchange of meaning, between interested parties in order to make deci sions about how best to manage risks. Risk communication can occur in many forms, from providing information to target audiences (primarily one way) to highly interactive stakeholder engagement and citizen dialogue (two-way). General considerations on risk communication can be used as a point of de parture for a preliminary study of risk communication in negotiation. Three types of risk communication can be distinguished: ▪ from broadly defined environment to each negotiator, ▪ between negotiators, ▪ from each negotiator to broadly defined environment. Risk communication can be illustrated with an example of communication be tween probabilist and contextualist approaches described by P. Thompson and W. Dean [1996]. It is quite likely that probabilists and contextualists will have rather divergent perspectives on risk communication. Probabilists are likely to think


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that people generally do not know about probabilities, and that they need to know probabilities to have adequate information about risk. Given this starting point, risk communication is largely a process of disseminating information about prob ability. Contextualists are less likely to approach risk communication with any specific assumptions about what people need to know. For the contextualist, risk communication will be construed as bridge building between discourse commu nities-between groups who share a particular social context and have evolved patterns for conceptualizing and discussing risk within that context.

(2) Negotiating risk Negotiating risk should be analysed within two overlapping approaches. Firstly, due to its dualist subjective-objective character the parts involved in any negotiation process including the issue of risk should first and foremost agree upon their understanding of the meaning of risk they apply. In such case it is the meaning of risk in semantic terms, which is the topic of negotiation. Secondly, the meaning of risk cannot be analysed in isolation of potential losses and ways to compensate them. Therefore the process of negotiating of the meaning of risk should also include tangible attributes of risk. The process of negotiating the meaning of risk in which the interests of partners are taken into account has been depicted by K. Shrader-Frechette [1990]. The point of departure of reasoning is that assessors who subscribe to the “Ex pert-Judgment Strategy” assume that one can always make a legitimate distinc tion between “actual risk” calculated by experts and so-called “perceived risk” postulated by laypersons. They assume that experts grasp real, not perceived, risk, but that the public is able only to know perceived risk. The Expert-Judgment Strategy consists of the belief, either that risk can be reduced to some characteristic of a technology, determined only by experts, or that it is possible for experts alone to distinguish “actual risk,” as a property of a technology, from so-called “perceived risk” postulated by laypersons. Once they make the distinction between perceived risk/real risk, many assessors assume that the perceived risks of laypeople are the source of most controversy over technol ogy. As a consequence, they ask how to mitigate the impact of perceptions about risk (perceptions they assume to be erroneous), rather than how to mitigate the impact of risk itself. They assume that public relations, or “risk communication”, is their only problem. The problem is more complex. If an appropriate risk-evaluation strategy is to have persons negotiate about their alternative definitions of risk and their differ ent value judgments concerning hazards, rather than to have them simply assess the predictive or explanatory power of their risk evaluations, or merely follow the Expert-Judgment Strategy, then there is an obvious question. How does one negotiate among persons so as to resolve some of their conflicts about acceptable risk? It is also worthwhile to add that both in risk communicating and risk negotiat ing the role of prospect theory should be also taken into account.

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4.9. Conclusion It is not simple to draw unequivocal conclusions of the chapter which aimed surveying ideas and definitions of risk applied in theory of negotiation along with their applications. Therefore only a few general observations can be made. It can be stated that in all considerations upon risk in negotiation the following issues have to be taken into account: 1. Subjective and objective character of risk definitions. 2. Cultural determinants of risk in negotiation. 3. Agency relation and information asymmetry in determining the role of risk in negotiation. 4. External and internal risk in negotiation process. 5. Relations between external risk and risk communication and negotiation. It must be also added that most promising directions of future research on risk in negotiation are associated with further development of game modelling and Complex Adaptive Systems (CAS) (Agent-based modelling).

4.10. References Akerlof G.A., The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism, “Quarterly Journal of Economics” 1970, Vol. 84, No. 3 Arrow K.J., Uncertainty and the Welfare Economics ofMedical Care, “American Economic Review” 1963, Vol. 53, No. 5 Arrow K.J., The Role of Securities in the Optional Allocation of Risk-Bearing, “Review of Economic Studies” 1964, Vol. 31 Ausubel L.M., Cramton P., Deneckere R.J., Bargaining with Incomplete Informa tion, [w:] Handbook ofGame Theory with Economic Applications, (ed.) R.J. Aumann, S.Hart, Vol. 3, Elsevier Science B.V., Amsterdam 2002, http://www. cramton.umd.edu/papers2000-2004/ausubel-cramton-deneckere-bargaining with-incomplete-information.pdf Beck U., Risikogesellschaft. Aufdem Weg in eine andere Moderne, Suhrkamp, Frankfurt a. M. 1986 Beck U., Risk Society: Towards a New Modernity, Sage, London 1992 Beck U., World Risk Society, Polity Press, Cambridge 1999 Beck U., Społeczeństwo ryzyka. W drodze do innej nowoczesności, Wydawnict wo Naukowe SCHOLAR, Warszawa 2004 Bernstein P.L., Against the Gods: The Remarkable Story of Risk, John Wiley & Sons, New York 1966 Boettcher W.A.III, Contexts, Methods, Numbers and Words: Prospect Theory in International Relations, “Journal of Conflict Resolution” 1995, Vol. 39, No. 3 Bolton P., Dewatripont M., Contract Theory, MIT Press, Cambridge MA 2005 Debreu G., The Theory of Value. An Axiomatic Analysis ofEconomic Equilib rium, John Wiley & Sons, New York 1959 Douglas M., Wildavsky A., Risk and Culture. An Essay on the Selection of Tech nological and Environmental Dangers, University of California Press, Berke ley 1982 Fudenberg D., Tirole J., Game Theory, MIT Press, Cambrdge, MA 1991 Gregersen N.H., Risk and Religious Certainty: Conflict or Coalition, “Tiddskriftet


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Politik” 2004, Vol. 4, nr 1, http://www.ku.dk/priority/Religion/content/Publi cations/gregersen_risk_religious_certainty.pdf Grossman S.J., Hart O., 1986. The Costs and Benefits ofOwnership: A Theory of Vertical and Lateral Integration, ‘Journal of Political Economy’ 1986, Vol. 94, No. 4 Hart O., Moore J., Incomplete Contracts and Renegotiation, “Econometrica” 1988, Vol.56, No.4 Hejeebu S. Contract Enforcement in the English East India Company, Cornell College, July 23, 2004, http://www.uwlax.edu/ba/eco/seminars/Hejeebu%20 paper.pdf Kahneman D., Tversky A. 1979. Prospect Theory: An Analysis of Decision under Risk, “Econometrica” 1979, Vol. 47, No. 2 Kelman I., Defining Risk, “FloodRiskNet Newsletter” 2003, No. 2, http://www. ilankelman.org/abstracts/kelman2003frn.pdf Keynes J.M., General Theory of Employment, “The Quarterly Journal of Eco nomics” 1937, Vol. 51, No. 2 Knight F.H., Risk, Uncertainty, and Profit, Hart, Schaffner & Marx; Houghton Mifflin Company, Boston 1921, http://www.econlib.org/library/Knight/kn RUP0.html Levy J.S., Prospect Theory, Rational Choice and Risk Aversion, “International Studies Quarterly” 1997, Vol. 41, No. 1 Luhmann N. 1990, Risiko und Gefahr, in Soziologische Aufklärung 5. Konstruk tivistische Perspektiven, Westdeutscher Verlag, Opladen 1990 Luhmann N. Observations on Modernity, Stanford University Press, Stanford, CA, 1998 McDermott R., Risk-Taking in International Politics. Prospect Theory in Ameri can Foreign Policy, University of Michigan Press, An Arbor, MI, 1998 Neumann J. von, Morgenstern O., Theory of Games and Economic Behavior, Princeton University Press, Princeton 1944 Rothschild M.D., Stiglitz J., Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information, “Quarterly Journal of Eco nomics” 1976, Vol. 90, No. 76 Shrader-Frechette K.S., Perceived Risks Versus Actual Risks: Managing Hazards Through Negotiation, ”Risk: Issues in Health and Safety” 1990, Vol. 1, http:// www.piercelaw.edu/risk/vol1/fall/shraderF.htm Shrader-Frechette K.S., Risk and Rationality: Philosophical Foundations for Populist Reforms, University of California Press, Berkeley, CA, 1991, http:// ark.cdlib.org/ark:/13030/ft3n39n8s1/ Smith V.L., Bargaining and Market Behavior: Essays in Experimental Econom ics, Cambridge University Press, Cambridge 2000 Thompson P.B., Dean W., Competing Conceptions ofRisk, “Risk: Issues in Health and Safety” 2006, Vol. 7 Williamson O.E., The Economic Institutions of Capitalism. Firms, Markets, Re lational Contracting, Free Press, New York 1985 Wit Ernst-Jan C., The Ethics of Chance, Ph. D. Thesis, The Pennsylvania State University, The Graduate School, Department of Philosophy, May 1997, http://www.math.rug.nl/~ernst/ethics_of_chance.htm

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Gabriela Roszyk-Kowalska, Andrzej Stańda1

5. The issue of framework qualifications of management staff 5.1. Role of qualifications framework In the discussion on qualifications of contemporary institutions’ staff, as a basic category that regulates potential of human resources, special significance is ascribed to the issue of determination of qualifications framework for Pol ish higher education (PQF) and their compliance with European qualifications framework (EQF) and, what is especially significant, their adjustment to the re quirements of economic practice. The connection between these categories seems to be clear. It results from the necessity to adjust qualifications of college gradu ates to the needs of labour market and civil society. Qualifications framework constitutes a description of essence and mutual rela tions among describers of qualifications, integrating various qualifications sub systems. It first of all supports transparency, availability and quality of acquired qualifications, which have become a subject of special attention in contemporary management. It arises from a necessity to adjust to economic phenomena, which take place in Poland and around the world. We witness the era of knowledge and information. Organizations strive to gain competitive advantage, identifying and developing key competences of an enterprise. These competences include col lections of qualifications of all company’s employees, especially those owned by management staff. Aim of this chapter is to review classic approaches to management qualifica tions and presentation of European concepts and Polish qualifications framework in a contextual image of changes that take place at universities.

5.2. Classic approach to managerial qualifications While observing the phenomena that take place in managerial education, it may be noticed that basic components of qualifications comprise of human skills formed within the course of particular actions [Z. Wiatrowski 2005, p. 56]. The basis or solving every, even the easiest task is a system of abilities regarding necessary mind operations or practical action, or both, and the knowledge of the desired or necessary order of actions [T. Nowacki 1979, p. 97]. F.W. Taylor – the establisher of modern management basis – emphasized the significance of managerial qualifications as of the first ones [G. Filipowicz 2004, 1

Poznań University of Economics.

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p. 13]. In his system of work, parallel research and precision determination of the manner of conducting and length of each production operation, as well as division of the managerial work, were assumed. Moreover, on the basis of the above mentioned principles, F.W. Taylor recommended popularization – through training – of exemplary ways of fulfilling workers’ duties and rewarding those, who apply them. The training was treated as acquisition of certain abilities, which formed competences. Thanks to the scientific methods of observation, measure ments and experiments, applied by this author, there are basis for current crea tion of a competence set of working/acting people [G. Roszyk-Kowalska, L. Staś 2003, pp. 91-92]. F. Bunker and F. Gilbeth drew attention to the notion of employees training, which is a basic tool in increasing effectiveness and cooperation in work pro cesses. This effect appears as a result of teaching exemplary methods of work, through oral and written explanations and application of demonstrative methods, which leads to elevation of the level of abilities. H. Ford took the process of work to the level of such a deep specialization that work in his facilities – as he claimed – did not require qualifications. The employ ees were trained within several days or hours. Therefore, H. Ford did not expect from his workers a specific set of skills, he shaped them on his own. When it comes to H.L. Le Châtelier, he put emphasis on workers training, so they could obtain a necessary set of abilities. For this purpose, he suggested using instructive cards developed in the department of organization. He encouraged to teach organization and at the same time discouraged thoughtless imitation and routine. Moreover, he encouraged to learn the ways of organizing human actions not only those who already worked, but also youth in high schools and at univer sities. When interests of H. Fayol moved from industrial organization to public ad ministration, he attempted to transfer the observations and conclusions from in dustry to the new ground of non-economic organizations. He put emphasis on the necessity to prepare managerial staff within the scope of managerial skill, not only through every day practice, but also through trainings, literature education, conference meetings, associations of people who represent specific specializa tions, contacts with managerial staffs of other organizations. In his publications he raised the matter of difficulty in selecting employees and training them, remu nerations, scheme tables of “future plans” [Z. Martyniak 1999, p. 15]. H. Fayol separated managerial skills from technical ones and maintained that significance of the first aspect increases together with hierarchy. He researched people on various managerial levels both in industry and administration, pointing the following skills that are characteristic for them: administrative (prediction, organization, delegation of orders, coordination and control), technical (produc tion, fabrication, modifications), commercial (buying, selling, exchanging), fi nancial (searching for capitals and working with them), insurance (protection of property and persons) and accounting skills (inventory, balance, establishing prizes, statistics) [H. Fayol 1947, p. 3]. The research resulted in determination of various levels of intensification of those skills on various levels of management, e.g. the highest intensification of technical abilities on the low level and high

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intensification of administrative skills (managerial – in current understanding) in case of high level managers. In every enterprise, the most significant skills of low-level officers are those professional – and the crucial ability of great managers is the administrative one, emphasizing that only technical training does not correspond to the general needs of companies, even those industrial [H. Fayol 1947, p. 40]. The above mentioned conclusions are formulated in a so called theory of managerial abilities. While conducting research over national administration, H. Fayol was the first to draw the following conclusions: apart from physical, mental and moral advantages and general education, each manager needs to meet three indispensable and essential requirements [Z. Martyniak 1999, pp. 16-17]: ▪ remain on the permanent post (with no continuous and objectively unjusti fied changes), ▪ present administrative abilities, ▪ hold professional competence. Furthermore, H. Fayol noticed a relation between the structure of skills and abilities of companies’ directors and their size (the bigger the company is, the higher need for administrative/managerial skills). Each so called special skill is based on a set of qualifications and abilities, which are put in the following man ner [1947, p. 39]: ▪ physical qualifications: health, strength, dexterity, ▪ mental qualifications: the ability to understand and learn, accuracy of judg ment, liveliness and flexibility of mind, ▪ moral qualifications, energy, stability, the courage of taking responsibility, initiative, devotion, tact and the feeling of dignity, ▪ general education: various information, which does not only fall within the scope of the held function, ▪ special abilities: regarding only either technical, commercial, financial, ad ministrative or other function, ▪ experience: abilities that come from practice in conducting business, this is a sum of conclusions drawn by ourselves from facts. H. Fayol was a practicing manager, who managed a mining company for plen ty of years. As a result of observations, he noticed that each enterprise and each manager are slightly different, therefore everyone should formulate their own principles [D. Jemielniak, D. Latusek 2005, p. 34]. From that time a lot of typologies regarding managerial abilities have emerged. M. Weber – drew attention, among others, to the necessity of obtaining particu lar knowledge, acquiring proper professional qualifications and specialization in ascribed functions by persons who are to take officer actions. He put emphasis on impersonality of principles of dealing with official cases without emotional elements, which characterizes every human being (hard elements). The basis for selecting candidates for particular posts were professional qualifications, which may be verified by exams, and documented by proper diplomas [Zarządzanie. Teoria ipraktyka 2002, p. 653]. Adamiecki was the author of the teaching program for the subject: “Principles of work organization” as indispensable abilities, which need to be acquired in order to manage effectively. Hauswald modified the Fayol’s table of managerial

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abilities – he limited six groups to three: administrative-insurance, technical and mercantile. He confirmed the matter of a decrease in intensification of technical skills together with an elevating level of management, but the intensification of the remaining two groups grows together with the position level. What is more, he drew attention to the necessity of joining education with practice (e.g. intern ships) for preparation of future managerial staff to fulfil duties in organizations. Bieńkowski presented a set of features of a perfect manager as a collection of harmonized abilities: will – the internal power that directs human actions towards achieving certain aims, courage in making decisions, the ability to predict, expe rience, self-control and the skill to conform to higher authority. One of the earliest and more common typologies is the division of managerial abilities prepared by R.L. Katz. The author distinguishes three main groups of abilities [J.A.F. Stoner, R.E. Freeman, D.R. Gilbert 2001, p. 33]: ▪ technical – the ability to apply methods, techniques and knowledge in a specialized field, ▪ social – the ability to cooperate with other people, understand them and motivate them both individually and in a group, ▪ conceptual – the ability to coordinate and integrate all interests and actions of an organization. Those are connected with perceiving organization as a whole, understanding correlations among its separate parts, and predicting the way, in which a modification of its element influences the whole. Academic achievements of H. Fayol and R.L. Katz suggest that although all of those three kinds of abilities are necessary in case of a manager, their relative significance depends on the level that he remains on. Technical skills are most important on the lower levels of management. Social skills, although important on every level, are crucially significant for medium level managers; their ability to makes use of their subordinates’ technical skills is more significant than their own technical effectiveness. Finally, the meaning of conceptual skills increases together with significance of the occupied level of management. On the higher levels of the organizational hierarchy, it is significant to understand the full scope of mutual human relations and place of the organiza tion in time. Plenty of years have come by since this idea was developed (1955), but it may be successfully used as a starting point for deeper deliberations over managerial skills, because in the subject literature there is a model which complements the above mentioned skills of managerial staff with diagnostic and analytical abili ties [R.W. Griffin 1996, p. 57], which enable the manager to properly diagnose a situation and to select the most suitable reaction. These are abilities of analysing and diagnosing problems of organization, researching their symptoms and devel oping rational solutions, so designing a proper reaction for a given situation and making a reasonable decision [J. Penc 2000, p. 111]. Managerial actions require specialist and general-managerial knowledge. The first one is necessary to competently manage processes from the organizational and technical side, the latter to competently influence the subordinates. Special ist knowledge becomes even more significant for specialization of managerial actions, when the results of work of the subordinate team are determined by


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technique and technology of production, and routine works dominate over those conceptual. Success of a high-level manager is decided by the ability to determine the mis sion and targets of the organization, the skill of winning subordinates for realiza tion of enterprise’s aims, the ability to jointly solve complex strategic problems [A. Czermiński et al. 2001, p. 99]. D. Goleman divided managerial abilities into three categories, determining: ▪ technical abilities, like accountancy or activity planning, ▪ cognitive abilities, like analytical thinking, ▪ abilities that reflect emotional intelligence, like fine cooperation with others and effective introduction of changes. In 1959, R.A. Gordon and J.E. Howell identified four basic groups of skills that are especially significant for the effectiveness of managerial work. They dif ferentiated abilities regarding [R.A. Gordon, J.E. Howell 1959, pp. 44-81, 104 105]: ▪ solving problems (making decisions, analysis, evaluation), ▪ organizational aspects (flow of information, division of work, planning, de legating, coordination), ▪ interpersonal level (strong personal motivation), ▪ communication (verbal and non-verbal, words and figures communications, formulation of thoughts; transmitting/maintaining/interpreting qualitative and quantitative information and data). The typologies of managerial abilities presented above determine readiness for action of managerial staff while fulfilling particular tasks, and a possibility to adjust to changeable conditions of their course. A manager that possesses a given skill – knows how to fulfil a certain task. Therefore, there is both a cogni tive (subject knowledge) and active aspect of a skill. It is hard to imagine skills without information, which would be hard to reveal without action [S. Tokarski 2006, p. 53]. Numerous researchers have asked a question about basic skills from the per spective of effectiveness of manager’s actions. In the USA, in 1970s, the ap proach to managerial abilities was criticized mainly because it was too academic. It was told that more emphasis should be put on making managerial education more practical, and first signal within this scope appeared in the mentioned coun try. In 1977, a committee, whose aim was to examine the application of practical skills as a part of the process of the managerial staff education effectiveness, was established. The next significant event took place in 1983. It was commencement of a series of publications by The Organizational Behaviour Teaching Society on managerial competence, in “Exchange” – a series issued for this purpose. This was formal emergence of the trend directed at making managerial skills more practical. Philosophy of this trend assumes that what managers do, i.e. their abilities, are much more important than what managers know [A. Rakowska, A. Sitko-Lutek 2000, p. 20]. On the basis of the research of AACSB (AACSB Outcome Measurement Pro ject 1987), from the perspective of mastering managerial staff, there were two basic groups of managerial abilities differentiated: cognitive and practical. The association underlined the significance of practical skills for the managerial per

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sonnel, coming to a conclusion that within the course of mastering these employ ees, insufficient attention is focused on skills that are acquired through learning in action. Business schools will actually begin to train managers, only when the training of skills occupies a serious position next to cognitive education. At first, our schools need to identify abilities, which are used by managers, then choose such participants, who have high potential in the scope of these skills, put the par ticipants in situations, where those skills are practiced, and then systematically provide feedback on their actions [H. Mintzberg 1975, pp. 49-71]. Within the scope of making the managerial skill practical, significant input was brought by the study of D. Whetten and K.S. Cameron. It was perceived to be one of the most innovative studies. The authors conducted critical review of managerial skills and came to a conclusion that instead of learning how to man age, the managers learn the theory of management [1983, p. 21]. In this situation they created a list of crucial managerial abilities that influence the effectiveness of management. They differentiated nine abilities in two subgroups: intrapersonal and interpersonal abilities. In the first subgroup there are personal skills necessary to understand one’s own behaviours and emotions, to get familiar with oneself. They comprise of: ▪ development of self-awareness, which is a starting point for enhancing ef fectiveness and perfecting other abilities. It includes: personality, recognized per sonal values, cognitive style (a style of collecting and processing information), ▪ stress management, i.e. proper management of time, establishing aims, ba lance of the realized values, ▪ creative problems solution, especially lateral thinking, formation of concep tual blocks, redefinition of problems. The second sub-group of the presented concept are interpersonal skills, which focus on relations with other people. These skills refer to engaging other people in mutual relations during contacts. Crucial here is the contact with the second person and its influence on this unit. In this sphere, the authors list six abilities: ▪ establishment of supportive communication, i.e. a skill of listening, empa thy, advising, ▪ obtaining power and influence. It regards the ability to use one’s own power, social influence and to obtain respect in eye of others, ▪ increasing motivation of subordinates and motivating them, i.e. possessing a skill of identification of needs and expectations of the subordinates, the ability to reward effective actions, the skill of determining standards for the pursued tasks, ▪ effective delegation that consists in abilities of determining tasks that can be delegated, pointing and transferring tasks as well as supervising and evaluating them, ▪ conflicts management. The ability of solving conflicts is connected with a skill of identifying their sources, dealing with emotions in conflict situations, maintaining good relations with others and a skill of accepting criticism, ▪ group decision making, including the ability of leading meetings, applying techniques of group decision making, avoiding mistakes regarding meeting that are lead incorrectly, effective communication.


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The model omits the technical skills that were listed in the concept of R.L. Katz because this group of abilities is acquired to a significant extent through teaching theory, and it refers to modelling behaviours to a smaller degree. Hence, while analysing managerial abilities, it is possible to separate skills from dex terities, and refer the first ones to “know how”, and the latter to “have the tech nique mastered” (literally “technical mastery”) [T. Pszczołowski 1978, p. 259]. A manager that can do a certain thing knows how to do it. Only when the action becomes complicated, when this thing is of complicated kind, the ability is identi fied with mastery. Z.W. Posrter and L.E. McKibbin determined this list of skills and intercon nected key characteristics of a manager similarly in 1988. They included the fol lowing abilities [J.D. Bigelow 1991, pp. 5-56]: ▪ analytical, ▪ computer, ▪ decision making, ▪ initiative, ▪ leadership/interpersonal ▪ oral communication, ▪ planning/organizing, ▪ taking risk, ▪ written communication. The typologies of managerial skills presented above are significant for a man ger to act effectively possess common elements. In each of the presented ty pologies, similar spheres may be differentiated: connected with skills of decision making, communicating, motivating employees, solving conflicts and negotiat ing. Each worker should possess skills, which support rational and effective deci sions. The ability of effective communication holds basic importance in fulfilling leadership roles by the manager. These roles should be comprehended as some behaviours of a given person, expected by others. The kept managerial role dem onstrates how a given manager needs to behave in a particular organization. Most often, managerial roles are created as a result of some patterns of behaviour that function in social groups within a given enterprise. They determine forms and sanctions that are typical for a given role. Typologies of roles may be different regarding the accepted criteria [B. Nogalski, J. Śniadecki 1999, pp. 86-89], but in order to fulfil them, a manager needs to transmit and receive information from other people, i.e. know how to communicate with his supervisors, subordinates, coworkers and contractors. This causes that manager spends a major part of time on communicating with other people. Therefore, he should take care of good atmosphere during con versations and effective exchange of information among partners. Constructive communication is also provided by active listening to the speaker and an ability to read his body language. Significant meaning is also ascribed to presentation of oneself that suits a particular situation. An effective manager needs to know how to speak persuasively. His language should be honest through the faith in what he says. In contacts with others, he should be able to use other abilities, such as conceding or expressing criticism [P. Wachowiak 2001, p. 99].

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Regarding the roles played by managers in an organization, they should be equipped with abilities of influencing their subordinates in a way that they act according to the manager’s expectations and help in realization of the company’s aims. The skills of motivating and managing conflict situations influence the at titude, behaviour and effects of actions of people and groups in the enterprise, and negotiations are a tool of solving problems and settling conflicts. If managers are willing to fulfil their roles effectively, they need to possess certain abilities, understood as a relatively durable ability to apply professional knowledge in a practical way in order to obtain a result that is desired in a given situation [M.M. Stuss 2003, p. 44]. Managing a company requires multiple abilities. Because organization works in a complex and changeable environment, and the degree of company’s depend ence on its elements is becoming more and more significant. For effective man agement it is not enough anymore to build permanent connections between re ceivers, suppliers, workers and shareholders or perceiving the surroundings from the perspective of five forces [M.E. Porter 1985, p. 35]. There is a necessity for the ability of perceiving and calculating risk, combining material and non-materi al resources in order to create a company’s skill that would be extraordinary. En trepreneurial attitude understood as the ability to create new things or old things in a new way and “gripping” other people to act in new, even unknown fields of activity – is needed [J. Penc 2000, p. 112]. A manager needs to implement changes, plan his own and enterprise’s future, make use of and evaluate event properly, while preparing different variants of conducts in various circumstances. An “exemplary” manager is described with various sets of required abilities, attracting attention to the rooted in behaviourism – typology of managerial abili ties – presented by S.J. Montowidlo, who suggests that skills of managerial staff may be partially inborn – when they are endowments (natural abilities of fulfill ing certain tasks [N. Sillamy 1994, p. 316] – and partially acquired. The first cat egory encompasses behaviours common for all managerial situations. These are typical actions, such as planning, controlling and decision making, administering and coordinating. The second category embraces behaviours that are less typical, i.e. present only in case of a particular specialty. These in turn refer to specialist knowledge and experience (they recall technical abilities from the model devel oped by R.L. Katz). Among requirements on managerial positions there are the following abilities listed: managing people, decision making, risk calculation, work evaluation, remuneration, rewarding, strategic management (market rec ognition, anticipation of threats, realization of strategic undertakings), manag ing conflicts, entrepreneurship, innovativeness, establishing contacts, delegating entitlements, motivating others, planning, organizing, control of work and others [Psychologia i socjologia zarządzania 1998, p. 19]. Managerial abilities are hard to define and enumerate. Most often they are de fined as a skill, i.e. fluency, dexterity or talent, thanks to which a person may take a given action in particular time, with no need for additional training [A.S. Reber 2000, p. 879]. Abilities of managerial staff constitute a basis for competences understood as a resource of knowledge (formal qualifications), and for practical skills acquired within the course of long employment on a managerial position (professional experience), and formal qualifications for certain actions.


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On the basis of the presented views of various authorities from the scope of managerial skills, it appears that most of them are of the opinion that skills are based on knowledge. Particular abilities are developed on the basis of acquired knowledge. Usually these are several systems of mental and practical abilities, adjusted to various categories of tasks. A major component of professional quali fications is systems of abilities – analysed in dynamic and hierarchical systems [U. Jeruszka 2006, p. 87]. S.M. Kwiatkowski suggests that on the level of mini mal requirements towards the effects of professional education, the collection of abilities constitutes in practice minimum of qualifications [2001, p. 161]. Requirements of employers towards qualifications of university graduates vary depending on kinds of qualifications that are sought for a particular post, but generally it seems that for employers it is fine-quality education and actual skills of the candidates that are most significant [W trosce o pracę… 2004, p. 196]. Therefore, among others there are qualification frameworks constructed, which may play a role of brackets that join education and professional work, including that of managerial staff.

5.3. Qualifications framework in higher education The issue of qualifications both in general and subjective perspective regard ing the category of managerial positions should be perceived not only in refer ence to internal regulations of an enterprise but within a broader scope, which arises from a general directive of systemic approach. In recent time, in the dis cussion on qualifications of contemporary institutions’ staff, as a basic category that regulates potential of human resources, special significance is ascribed to the issue of determination of qualifications framework for Polish higher education (PQF) and their compliance with European qualifications framework (EQF) and, what is especially significant, their adjustment to the requirements of economic practice. The connection between these categories seems to be clear. It results from the necessity to adjust qualifications of college graduates to the needs of labour market and civil society. The labour market requires increasing flexibility from graduates, which can not be provided by a graduate of a stiff education process that is thoughtless from the point of view of education compliance and expectations of practice. If the 21st century is – as P. Drucker suggests [2009] – is the era of a worker of knowledge, the universities face a special duty of increasing international transparency of the higher education system and enhance coherence with requirements of economic practice. Therefore, cognitive reflection referred to subjective correlation seems to be obvious. The following deliberations are an attempt to attract attention to the necessity of assuring coherence of all actions that are taken in the sphere of building social potential of a contemporary institution. Among other it means that there is a need to unify the variety of methodological approaches applied in solving the problem of shaping qualifications of the managing people. It also means that it is justified to agree on a common terminology regarding subjective problems. Normative solutions accepted on European scale, regarding educa tion, are based on a specific terminological convention, which changes the state of e.g. knowledge that is characteristic for sciences on management, and which might need to be revised within such categories as: qualifications, competences,

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knowledge, abilities. Of course, we should make an assumption that the problem of building potential of managers does not consist in coherence of terminology, but in the manner of educating staff and evaluation of its actual effectiveness Simultaneously, especially significant is the matter of place, where the process of shaping qualifications is realized, i.e. university.

5.4. Qualifications as understood by European and Polish Qualifications Framework (EQF, PQF) According to recommendation of the European Parliament, which determine EQF (and as a consequence PQF) the term qualification means “a formal result of the process of evaluation and validation, obtained in a situation, where an ade quate body, according to the agreed procedure, came to the conclusion that a giv en person achieved the effect of learning in accordance with particular standards” In this meaning, a qualification is comprehended as a formal category (confirmed with a diploma, certificate, etc.), which results from a specific stage of education, which confirms achievement of particular effects of education. Therefore, confir mation of the education effects is crucial for this process, and the education ef fect is perceived as what the university graduate should know, understand and be able to do, as a result of a given completed sequence of learning. The program of studies should purposefully differentiate the following kinds of education effects: ▪ general (generic) – characteristic for a given stage of education (e.g. for first degree studies), independent from the major of studies; ▪ „field” – characteristic for a given stage of education, determined in a broad field of education, encompassing a whole group of majors of studies (e.g. for technical majors); ▪ detailed – specific for a particular program of studies and its specific reali zation at a given university or unit that organizes the studies. A necessity of systematic presentation of education effects triggers a need to classify them with reference to the concept of indicators (descriptors), known as Dublin Descriptors, defined in five categories [E. Chmielnicka, Z. Marciniak, A. Kraśniewski 2001, p. 13]: ▪ knowledge and comprehension, ▪ application of knowledge and comprehension, ▪ ability of drawing conclusions and formulating judgments, ▪ ability of communication, ▪ ability of learning. As a consequence, in European Qualifications Framework (EQF), resulting from the EU standards, effects of learning are defined in three categories [E. Chmielnicka, Z. Marciniak, A. Kraśniewski 2001, p. 12]: ▪ knowledge, which may be theoretical or factographical, and which means an effect of knowledge acquisition through learning; it is a collection of descrip tions of facts, principles, theories of practices, connected by a particular field of work or science; ▪ abilities, which in the context of EQF may be connected with mind/cogni tion (logic, intuitive and creative thinking) and practical (regarding manual de xterity and application of methods, material, tools and instruments); they mean


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the ability to apply knowledge and know how in order to fulfil tasks and solve problems; ▪ personal and social competence, which in the context of EQF are defined in categories of responsibility and autonomy; they mean a confirmed ability to apply knowledge, skills and personal, social or methodological competences, presented at work or in education, and in professional career and personal development. The above mentioned categories cannot be obviously treated separately, be cause the category of effect, which knowledge surely is, embraces a part of the component of abilities, and this effect in turn encompasses certain elements of knowledge, and knowledge and abilities constitute a significant ingredient of personal and social competence. Since in Polish practice, both language and pragmatic, the terms knowledge and abilities are equal with proposals of EQF and PQF, the category of personal and social competences triggers controver sies. According to the meaning of these words in Polish, knowledge and abilities are also competences of a person that learns. Language practice does not finally decide on semantic differences between the terms competence and qualification as well. The terminological convention accepted in EQF and PQF clearly aims at encompassing with competences first of all the effects of learning referring to tasks of professional character: individual and professional. The content of “competences” according to EQF is determined with the following expectations [E. Chmielnicka, Z. Marciniak, A. Kraśniewski 2001, p. 139]: ▪ management of complex technical and professional actions or projects, ta king responsibility for decisions that are made in unpredictable contexts con nected with work or education, taking responsibility for managing professional development of units or groups; ▪ managing and transforming contexts regarding work or education, which are complex, unpredictable and demand new strategic approaches. Taking re sponsibility for getting involved into development of knowledge and professional practice, or for reviewing strategic results of the team; ▪ showing significant authority, innovativeness, autonomy, education and professional ethics, and permanent engagement in development of new ideas and processes in the most significant contexts of professional work or education, in cluding research. Discussion about the subjective, controversial for category of qualifications, term resulted in consensus, and definition of competences valid in PQF is as fol lows: “personal and social competences – ability of autonomous and responsible actions, including the ability of cooperation, as both member and leader of a team, and an ability to adapt to the world that is changing more and more quickly, through lifelong learning”. It seems that the above definition is perfectly com municated with the terms: knowledge and abilities, and it may pose a significant directive regarding processes of building qualifications of managerial staff, not only from the perspective of management sciences achievements, with its termi nological ambiguity, but also in accordance with normative recommendations that result from and are obligatory in higher education processes according to European and Polish Qualifications Framework.

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5.5. University – a place of building qualifications A university holds special function in the process of shaping qualifications managerial of staff. It is an institution, where on one hand we have been deal ing with universal cognition, revelation of truth for centuries (the first European university was established in Bologna in 1088, and it specialized in Roman law), and on the other – in contemporary times – there is a pragmatic idea of the “3rd generation university”, as an entrepreneurial institution that remains in a specific relation towards the environment [J.G. Wissema 2005]. This concept is up to date especially in case of universities of technical, medical or economic character. There is a specific connection between the process of building intellectual capital and market mechanism. Such a state of affairs needs to have and has specific consequences for the process of shaping qualifications of graduates. Because a university’s task is to shape qualifications that are necessary for the graduates to play various roles in the society. This imposes on universities a duty to adjust to expectations of the environment, which may also mean a growing trend for commercialization of knowledge, and as a result of the universities themselves. A significant role in this process is played by business corporations, which expect a university graduate to be an expert with high qualifications (knowledge, abilities and competences), which may be quickly verified and further developed, because this is required from a knowledge-based economy. When this condition is not ful filled, a significant gap in social potential of the company appears, hindering its ability to win competitive advantage. Situation on global business markets causes that numerous universities transform from institutions of social service (universal cognition) into business institutions oriented on achieving positive financial out come. In the light of this necessity, those universities are the best, which provide a graduate, treated as a market product, and not those, which lead in building intellectual capital. The university’s duty is to effectively provide knowledge of demanded market usefulness, which causes a change in the way of its function ing by various mechanisms, such as, among others [T. Kowalewski, T. Popławski 2009, p. 141-147]: ▪ academic managerism, which consists in changing the style of running a university, which is visible through diminishing the role of professors/intellectu als to the benefit of managers, which do not have much in common with learning and teaching. However, they provide a didactic staff with goals and tasks, which are to bring measurable economic benefits, ▪ academic consumerism, manifested by the fact that academic diplomas, co urses and credits do not hold value in themselves anymore. They are sold, just like any other goods. Academic services within the area of education/teaching and production of knowledge are treated in categories of demand and supply, and students are customers/consumers. Education is perceived in utility categories, not intellectual ones. Stay on the university is treated as an academic business transaction, ▪ academic re-stratification, which shapes a new academic hierarchy, where a new criterion of estimating subjects and courses, departments, institutes and fa culties and separate persons becomes a useful and market value, an exchangeable value of particular forms of knowledge. Marketed professors are stratified thro ugh the prism of financial resources that they obtain to the benefit of university


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decision makers. Such a dangerous trend weakens the maintenance of the basic idea of a uni versity, which is creation of knowledge regardless its economic intellectual value. Therefore, a question arises, to what extent does the above mentioned process of shaping qualifications in accordance with European and Polish qualifications frameworks communicates with the concept of institutionalization of universi ties, realized in Polish circumstances. In the light of these trends, what is the role of the university in autonomous shaping of a scientific cognition function? The necessity of mastering this highly socially significant institution seems to be ob vious, but the tendencies mentioned above make this process extremely difficult.

5.6. Conclusion Requirements of a contemporary labour market provide education institutions with a requirement to provide employees with higher and varied qualifications. Ability (knowledge and skills) and readiness (personal competences) of a worker, to realize increasingly complex, and often not entirely known tasks, is among others regulated by the level of qualifications, determined by various descriptors. The process of building qualifications may be considered in the context of histori cal and evaluative experiences, which was the subject of deliberations in the first part of the studies. Complexity of the problem was presented there – the essence, content, determinants – marked with a term qualification in its broad interpreta tion. A place, where qualifications of the highest quality are built is a university. In the circumstances of increasing marketization of education, it is significant to determine the kind of a graduate, his knowledge, abilities and personal compe tences (requirements of qualifications framework) that is expected by the labour market. A study of normative solutions, determined by European and Polish qual ifications framework pointed to critical issues of the analysed problem. Attention was also drawn to highly significant and dysfunctional phenomenon of deprecia tion of academicism of universities, with its influence on processes (research and didacticism) that take place inside them.

5.7. References Bigelow J.D., Managerial Skills, Exploration in Practical Knowledge, Sage Pub lications, 1991 Cameron K.S., Whetten D., A Modelfor TeachingManagement Skills, Exchange, “The Organizational Behaviour Teaching Journal” 1983, Vol. 8 Chmielnicka E., Marciniak Z., Kraśniewski A., Krajowe ramy kwalifikacji w szkolnictwie wyższym, [in:] Program autonomy of a university. Qualifica tions framework for higher education. Project of the Ministry of Science and Higher Education „Krajowe ramy kwalifikacji w szkolnictwie wyższym jako narzędzie poprawy jakości kształcenia (National framework in higher edu cation as a toll of increasing the quality of education), Priority IV, PO KL, Action 4.1 Subation 4.1.3, MNiSzW (Ministry of Science and Higher Educa tion), Warszawa 2011 Czermiński A., Czerska M., Nogalski B., Rutka R., Apanowicz J., Zarządzanie organizacjami, Dom Organizatora, Toruń 2001

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Drucker P., Zarządzanie XXI wieku – wyzwania, MT Biznes, Warszawa 2009 Fayol H., Administracja przemysłowa i ogólna oraz nauka o administracji w zas tosowaniu do państwa, Wydawnictwo TNOiK, Poznań 1947 Filipowicz G., Zarządzanie kompetencjami zawodowymi, PWE, Warszawa 2004 Gordon R.A., Howell J.E., Higher Education for Business, Garland, New York, 1959 Griffin R.W., Podstawy zarządzania organizacjami, PWN, Warszawa 1996 Jemielniak D., Latusek D., Zarządzanie, Wydawnictwo Wyższej Szkoły Przedsiębiorczości im. Leona Koźmińskiego, Warszawa 2005 Jeruszka U., Kwalifikacje zawodowe, IPiSS, Warszawa 2006 Kowalewski T., Popławski T., Między tradycją a nowoczesnością. Wyłanianie się kapitału intelektualnego w uniwersytecie III generacji, [in:] Kapitał intelek tualny i jego ochrona, E. Okoń, R. Wisła (ed.), Instytut Wiedzy i Innowacji, Warszawa 2009 Kwiatkowski S.M., Kształcenie zawodowe. Dylematy teorii i praktyki, Instytut Badań Edukacyjnych, Warszawa 2001 Martyniak Z., Organizacja i zarządzanie. 15 pionierów, ANTYKWA, Kraków 1999 Mintzberg H., The Manager’s Job: Folklore and Fact, “Harvard Busines Re view” 1975, No. 53 Nogalski B., Śniadecki J., Kształtowanie umiejętności menedżerskich, OPO, By dgoszcz 1999 Nowacki T., Podstawy dydaktyki zawodowej, PWN, Warszawa 1979 Penc J., Menedżer w uczącej się organizacji, Menadżer, Łódź 2000 Porter M.E., Competitive Advantage, The Free Press, New York 1985 Psychologia i socjologia zarządzania, B. Wiernek (ed.), Oficyna Wydawnicza „Text”, Kraków 1998 Pszczołowski T., Mała encyklopedia prakseologii i teorii organizacji, Zakład Prakseologii Instytutu Filozofii i Socjologii PAN, Zakład Narodowy im. Ossolińskich, Wrocław-Warszawa-Kraków-Gdańsk 1978 Rakowska A., Sitko-Lutek A., Doskonalenie kompetencji menedżerskich, PWN, Warszawa 2000 Reber A. S., Słownik psychologii, SCHOLAR, Warszawa 2000 Roszyk-Kowalska G., Staś L., Klasyczne i współczesne poglądy na kompetencje w zarządzaniu, [in:] Współczesne interpretacje dorobku klasyków nauki o or ganizacji i zarządzaniu, P. Banaszyk (ed.), Wydawnictwo Akademii Ekonom icznej w Poznaniu, Poznań 2003 Sillamy N., Słownik psychologii, Książnica, Katowice 1994 Stoner J.A.F., Freeman R.E., Gilbert D.R., Kierowanie, PWE, Warszawa 2001 Stuss M.M., Metody oceniania współczesnej kadry menedżerskiej, Księgarnia Akademicka sp. z o.o., Kraków 2003 Tokarski S., Kierownik w organizacji, Difin, Warszawa 2006 W trosce o pracę. Raport o rozwoju społecznym Polska 2004, S. Golinowska (ed.), Warszawa 2004 Wachowiak P., Profesjonalny menedżer. Umiejętności pełnienia ról kierownic zych, Difin, Warszawa 2001 Wiatrowski Z., Podstawy pedagogiki pracy, Wydawnictwo Akademii Bydgoskiej


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im. Kazimierza Wielkiego, Bydgoszcz 2005 Wissema J.G., Technostarterzy, dlaczego i jak, PARP, Warszawa 2005 Zarządzanie. Teoria i praktyka, A.K. Koźmiński, W. Piotrowski (ed.), PWN, Warszawa 2002

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Adam Stabryła1

6. Decision analysis methods in designing improvements in a company’s organization and functioning 6.1. Introductory remarks2 The paper presents selected research methods related to the selection of ra tional solutions in corporate business practice. It is assumed that the methodology of designing incorporates various designing concepts, which implies the neces sity of using specific effectiveness measuring methods. Decision analysis, in its universal dimension, is a research process focused on assessing the generated variants and the selection of a rational (optimal) solution. It is also assumed that the reduced area of comparative analysis is provided by the existing condition referred to improved solutions. Extended comparative analy sis, on the other hand, comprises at least two improved solutions. Also, it is as sumed that decision analysis adopts description-improvement, functional-pattern and diagnosis-functional approaches [Z. Martyniak 1999, p. 11]. The paper presents the following research instruments: standard discount methods, coordination account, quotient normalization method, functional analy sis and project implementation performance indicators3.

6.2. Standard discount methods A variety of methods for assessing the economic effectiveness of projects pose the question of selecting appropriate methods in practical applications. Generally, discount methods are unquestionably put above static methods. It is easy to justify this view – static methods do not consider the time factor and changes to the value of money in time. Discount methods, on the other hand, stress the time-related aspects of cash flows, but they do not explicitly determine the selection of rates of return, nor do they provide a basis for assessing project risk. The strategies which implement standard discount methods can be summa rised in the following way: Cracow University of Economics. This chapter is prepared under a research project. The project is financed by the National Science Centre pursuant to decision No. DEC-2011/03/B/HS4/03585. 3 The presented methods constitute a review of comparative and verification methods in the area of organizational system projects [A. Stabryła 2005, 2011, 2013]. 1 2

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1. NPV– a positive assessment is given to projects when NPV ≥ 0. When NPV=0, cash flows generated by a project allow for 1) repayment of the engaged capital, 2) achievement of the expected return on capital. In this case discount ed revenues balance discounted costs, taking into account possible decreases in capital due to inflation. On the other hand, positive NPVvalues – apart from the above mentioned benefits – indicate that cash flows generate an additional inflow of cash. Negative NPVvalues indicate rejection of a given project. 2. Internal Rate of Return (IRR). When IRR is greater than expected boundary parameter r (i.e. discount rate), a given project qualifies for implementation. 3. Discount rates used in calculations include the following: ▪ rate of return without a risk premium (e.g. interest on bank deposits or tre asury bonds), ▪ inflation rate (current, predicted and average of inflation accumulated rates), ▪ project adjusted return rate4, ▪ risk accepted by investors for a given project, ▪ cost of capital, ▪ average returns on generally available funds, e.g. investment funds, bond funds and treasury bills. 4. In the case of NPV it can be assumed that cash flows will be refinanced on the basis of a company’s cost of capital, while in the case of IRR reinvesting will be based on IRR(Pi), but its value should be equal at least to the boundary rate (re ferred to as adjusted project return rate). Reinvesting based on the cost of capital is believed to be a better option, which indicates that NPVhas an advantage over IRR [E.F. Brigham, L.C. Gapenski 2000, p. 328]. 5. The selection of an optimal project variant with the use of IRR is based on the following decision-making principles: a) assumption: project variants qualify only in the case when IRR(Pi) exceeds, or is equal to the boundary rate of return, b) selection: the best variant (out of the set of acceptable variants) is the one whose IRR(Pi) reaches a maximal value. 6. When the cost of one of the components of project financing is character ised by considerable changeability, calculations should be based on discount rates prevailing in the particular periods of forecasts. 7. Alternative projects or project variants can be based on various decision making principles: ▪ when project targets are met (technical, organizational, ergonomic, etc.), and threshold updated project costs are not exceeded, the choice is determined by 4 The adjusted project return rate is a discount rate which takes into account risk (risk-adjusted di scount rate method, RADR). The adjusting factor is a risk coefficient which – depending on external and internal conditions – raises or lowers the level of the adopted rate of return. The risk coefficient can range, for example, from 0 to 1.5, or from 0.5 to 1.5. Risk-related adjustment is calculated in the denominator of NPVequation (with regard to discount rate): a) average risk projects are discounted at the level ofa company’s cost ofcapital; b) higher than average risk projects – according to higher costs of capital (discount rate r is multiplied by risk coefficient whose value is larger than unity), c) lower than average projects – according to lower costs of capital (discount rate r is multiplied by risk coefficient whose value is lower than unity). [E.F. Brigham, L.C. Gapenski 2000, pp. 417-420].

Decision analysis methods in designing improvements...

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the lowest updated project cost5, ▪ when the boundary rate of return is reached, the choice is determined by the highest level of project functionality6, ▪ when project assumptions are fulfilled, selection is based on a maximal va lue ofNPVor IRR.

6.3. The role of the coordination account in project portfolio management A project portfolio comprises projects which are included in a common pro gramme of changes, and it assumes a specific level of risk and economic effec tiveness criteria. A portfolio can comprise projects which are different in terms of their thematic and functional scope but which are determined by a company’s strategic objectives and investment potential. The coordination account is a method for developing an optimal schedule of projects which a company intends to implement in its various business areas. The account is based on analysing and programming changes as well as planning material and financial effects of implemented projects. The material changes of implemented concepts include better parameters of adopted solutions, for example those related to the assortment of products, man agement systems, tasks, quality, productivity, etc. Changes in the real economic sphere are accompanied by financial effects related to the structure of revenues and costs, for example: ▪ lost opportunity costs resulting from the potential effects of abandoned acti vities (e.g. as a result of outsourcing or production stoppages), ▪ revenues resulting from diversified core and support activities, ▪ expected decreases in costs as a result of organizational and technical chan ges in production and management systems, reduced administration and service staff, and increased quality of workmanship, ▪ expected reductions in revenues as a result of the abandoning of specialised services, ▪ an increase in production costs resulting from greater volumes of exported products, ▪ increased costs of general management due to diversified financial, R&D and marketing functions. In light of the above, the coordination account is a research approach aimed to determine the economic effectiveness of various changes implemented as part of manufacturing and technical projects as well as in social and personal develop ment programmes. The major characteristics of the coordination account include the following: ▪ the account translates various types of changes to economic effects, ▪ it represents a specific type of cash flows related to project undertakings (representing net cash flows generated by a given undertaking and investment outlays), ▪ it represents a chronological structure of correlated revenues and costs cor 5 6

Adjusted threshold project cost is an aggregated discounted cost accepted by investors. Threshold rate of return is a satisfactory rate of return – a boundary or higher rate of return.

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responding to the particular sections and stages of the project design and imple mentation cycle (tab. 6.1), Tab. 6.1. A pattern for determining the economic effects of proposed solutions in the coordi nation account

A. PRE-IMPLEMENTATION STAGE I. Revenues from operations 1. Revenues from the sale of products 2. Revenues from the sale of goodwill II. Operating costs 1. Costs of analytical and research work 2. Costs of design work 3. Costs of verification and decision-making 4. Total operating costs III. Difference [I-II] B. IMPLEMENTATION STAGE B(1) Initial implementation I. Revenues from operations 1. Liquidation of fixed assets 2. Revenues from the sale of inventory 3. Total operating costs II. Costs of activities 1. Planning and implementation costs 2. Costs of asset restructuring including costs of liquidation of fixed assets 3. Investment outlays including interest 4. Costs of implementation control 5. Lost opportunity costs 6. Total operating costs III. Difference [I-II] B(2) Operating stage I. Increased revenues from the sale of products II. Reduced costs, including: 1) reduced production costs 2) reduced Management costs 3) reduced losses III. Reduced revenues IV. Increased costs, including: 1) increased production costs 2) increased Management costs V. Difference [I+II] – [III+IV] Financial result A.III + B(1)III + B(2)V Source: own research.

▪ it is a tool for managerial decisions related to budget rationalisation (outlays and results), which is reflected in effective allocations of funds for various pro grammes of change.


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Therefore, it is generally assumed that the coordination account is a tool for the structured assessment of improvement and innovation variants which result in a specific financial effect. Also, it can be used as a diagnostic tool for assess ing the current status on the basis of ratio analysis. To sum up, the coordination account is a universal decision and control tool, and its range of applications includes overall problems related to comparative analyses.

6.4. The procedure for applying the coordination account Procedures related to developing an optimal project schedule and portfolio, based on the coordination account, can be divided into the below presented stages. 1. Analysis of a company’s external and internal conditions with regard to economic, organizational, HR, information and technical and production aspects. 2. Identification of a project strategy: 1) setting development and improvement targets, 2) developing the original project portfolio for various investments and functions (types of activity) as well as corporate sectors (business areas). 3. Assessment of project risk and qualification. Risk assessment in the coordination account is based on two methods: 1) dis count rate along with RADR (see: footnote 3), 2) certainty equivalent method (CE). An optimal project portfolio schedule is determined by the ranking of projects (according to the highest rates of return), and it gives positive assessments to pro jects whose rates of return IRR(Pi) are above a company’s costs of capital – the marginal rate of return. When projects involve risk, the original project portfolio is verified by raising discount rate levels in the case of higher than average risk (discounting accord ing to a company’s cost of capital), or by lowering discount rates for low-risk projects. Verification consists in developing an adjusted ranking list which cor responds to an optimal project portfolio schedule. Adjusted discount rate rk assumes the following form:

kkrrη=⋅,

(6.1)

where: η – risk coefficient. Risk coefficient ηkcan range from 0 to 1.5 or from 0.5 to 1.5, depending on risk assessment (high, average or low). The certainty equivalent method verifies the original project portfolio, devel oped on the basis of the ranking of projects which represent a maximal aggre gated value of discounted cash flows. CE represents the volume of adjusted cash flows. Adjustment consists in low ering the volume of cash flows which involve risk. The higher the level of project risk, the lower the value of CE (i.e. adjusted cash flows). It indicates that unwill ingness to take risk occurs when certainty equivalent is lower than the expected


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value of uncertain cash flows. Also, the lower the value of CE, the lower the inclination to take risk [E.F. Brigham, L.C. Gapenski 2000, p. 418]. CE is calculated in the following way:

CEt a= t ⋅, NCFt

(6.2)

where: CEt– value of CE for cash flows in period t, αt– adjustment multiplier, NCFt– net cash flows. The adjustment multiplier has the following form:

at =

100 Vs − , 100

(6.3)

where: Vs– changeability coefficient (%). The changeability coefficient performs the function of the measure of risk, and it is calculated for the flows of various components of a company’s costs of capital which finance a given project. It implies that a company’s cost of capital is subject to change in the particular stages of the project life cycle, so it is justified to measure risk with the use of the changeability coefficient. The calculated value of certainty equivalent CEt results from utility theory and expresses the idea that there is a value of risk-free cash flows (based on certainty) which has the same utility or priority as the expected value of cash flows which involve risk. The use of the CE method is the final step in calculating the adjusted net value of cash flows NPV(CEt), in which the risk-free rate of return performs the func tion of the discount rate7. An optimal project portfolio schedule, developed on the basis of the presented method, comprises independent projects characterised by positive NPVvalues as well as alternative projects with the highest NPVvalues. 4. Preparing the final project portfolio budget The project portfolio budget is a plan for financing the following groups of undertakings: 1) investment projects and those related to a company’s various sectors and functions (with a corresponding optimal project portfolio schedule), 2) a plan of operating activities, 3) non-profit projects (e.g. in the area of social is sues, ecology, or improvements in the organization of administration processes). In light of the above, the project portfolio budget has a much broader scope than an optimal project schedule. Budget preparation can require capital rational isation in connection with the allocation of funds for the above identified groups of projects. In the case of imposing financial restrictions on particular groups and types of projects an optimal project portfolio schedule should be determined by a 7

Risk-free rates of return include treasury bonds and bank deposits.


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set of projects characterised by a maximum aggregate value of NPV(CEt). Also, priority can be given to non-profit projects. In this case, threshold values for par ticular projects must be set within the adopted financial limits.

6.5. The standardization quotient method in taking design decisions As a result of the aggregate assessment paradigm referred to the identified project variants, the need arises to harmonise a variety of the applied choice cri teria. The manner of effecting harmonization is expressed by the standardization quotient method. Thanks to standardization it is possible to calculate the arithme tic mean (simple or weighted) from the sum of values of given choice criteria. This mean is a synthetic value of a defined design variant, in other words, the ag gregate value which constitutes integration of standardised criteria for selection8. At the same time it is the basis for indicating an optimal project variant, which is equivalent to the solving of a given decision-making problem. It is proposed that the research process cycle which best corresponds to the standardization quotient method, used for the making of project decisions, should be divided into the following stages: 1. Definition of project solutions. 2. Drawing up a set of selection criteria. 3. Determining the value of selection criteria models. 4. Selection criteria standardization quotient. 5. Calculation of the aggregate assessment indicators of given project solu tions. 6. Classification of the aggregate assessment indicators of given project solu tions. 7. Indicating the optimum project solution. 8. The characteristics of the identified stages are presented below.

Stage 1. Definition of project solutions This stage is a presentation of innovative or modernised ideas relating to a chosen object of research and a decision-making problem. Given project variants are generated on the basis of given assumptions including objectives, situational action requirements (current and predicted external situation) and internal condi tions relating to the planned undertaking. Project variants may be true solutions, which are confirmed empirically (so-called benchmarks). However, they also represent model solutions.

The selection criteria in their original form are expressed by characteristic values (e.g. techno logical readiness, quality, reliability and rates of return) and cannot be added together, nor can the arithmetic mean be calculated. In contrast, the standardised selection criteria as secondary criteria (restated) are already subject to algebraic operations. 8


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Stage 2. Developing a set of selection criteria They are described in the following way:

{}12,,...,jnxxxx=  , where: jx  – set of selection criteria, xj – selection criteria, j=1, …, n. Tab. 6.2. Example of selection criteria for project variants Specification Product aspect: ▪product and sales value, ▪profit on sales, ▪market share, ▪product (service) quality, ▪product modernity, ▪profitability, ▪financial liquidity, ▪productivity, ▪solvency. Process aspect: ▪production capacity, ▪technological process failure rate, ▪quality level of technological processes, ▪the degree of automation, ▪degree of compliance with management process standards, ▪labour intensity, ▪cost effectiveness, ▪functionality of administrative and managerial operation methods. Organizational aspect: ▪organizational structure content, ▪required level of employment, ▪level ofintegration, ▪functionality of procedures, ▪feasibility level. Substantive aspect: ▪education potential, ▪creativity (innovation), ▪job enrichment, ▪integration level, ▪interpersonal relationships. Business activity aspect: ▪diversification of activities, ▪conclusion of foreign transactions, ▪joint ventures and direct investment, ▪transfer of capital and technical and scientific thought, ▪funds obtained from financial institutions (domestic and international), ▪competitive potential, ▪globalization of activities. Source: own research.

(6.4)


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This stage assumes a differentiation in the types of selection criteria, but also in their number. Tab. 6.2 presents an example of selection criteria, specified in terms of the aspects of decision-making problems. In a comprehensive decision-making analysis the structure of the selection cri teria should be diverse, but it is also necessary to remember about their comple mentary character. Furthermore, although there are no strict guidelines indicating a specific quantitative range of criteria which should be applied, it is necessary to assume that expert opinion will act as the appropriate measure when defining their structure and number. It should also be stressed that quality criteria in the presented method must be calculated in terms of points, and then standardised as a quotient formula. Without these operations it would not be possible to aggregate them with quantity criteria. At this stage it is possible to determine the significance of the selection criteria which express their meaning (importance). The basis for taking a decision will be the calculated indicators of the weighted aggregate assessment of given design variants. An example of weighted selection criteria may be the following prefer ence layout: ▪ 6: absolutely essential criteria (dominating), ▪ 3: fundamental criteria, ▪ 1: auxiliary criterion.

Stage 3. Determining the value of selection criteria models Determining the model values appropriate for the selection criteria is one of the most important activities of this method. Model values are a certain assess ment system which constitutes a multi-criteria evaluative system. These models may be normative or postulative in nature. Normative models are expressed by dimensions indicated in advance (param eters, characteristics), which are treated as optimal or sub-optimal. These are ei ther theoretical and experimental dimensions, or dimensions which have been de termined in an obligatory manner as set (planned) dimensions. These are assumed to be extreme in dimension; if the dimension is exceeded or not attained, this is seen as an error. Normative models are also defined as nominants [B. Pawełek 2008]. On the other hand, postulative models are seen in the following two ways: ▪ one of them refers to stimulants or dimension, which demand a growth ten dency, ▪ the other refers to destimulants or dimension, which demand a decrease tendency, The difference between normative (nominants) and postulative (stimulants and destimulants) models is that for normative models the deviation upwards or downwards is assessed negatively, whilst for postulative models every growth situation in the value of the stimulant is treated positively and, analogically, each case of decrease in the destimulant value, analogically, is assessed favourably9. 9 It is also possible to apply threshold values (“thresholds”), which only define from the bottom or the top level the border level of the model dimension. Threshold values also belong to normative models in a broad sense of this term.


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The preparation of company accomplishment assessment models constitute the outcome of the modelling process or benchmarking. Modelling may take place in the form of planning an experiment which is to generate models-types. These models-types may be as follows: ideal, utility and a priori. However, benchmarking is seen as a research approach, which involves the location of models-types already used in practice (covering one’s own business operations or beyond). Benchmarking also concerns the modification of already implemented models-types. This concept leads to the search for the best organi zational, economic, technical and other solutions, constituting models-types em ployed for one’s own operations. The use of experience gained by outstanding en tities, and learning from leaders constitute a universal guideline for improvement. The most typical characteristic function of the referred to approach involves focusing on the finding of benchmarks, in other words reference points for assess ing the results of one’s own operations (e.g. in terms of competitiveness, sales, technology level, quality and reliability of goods, economic and organizational effectiveness of processes, productivity and labour costs). Benchmarks are stand ards, optimal indicators, which constitute a distinguishing hallmark of action. The generated variant solutions facilitate identification of model values for choice criteria. The process consists in finding the best parameters (character istics) belonging to the set of variants and classifying them as stimulants, des timulants and nominants (or as reference ranges). The specification of the best parameters (characteristics) is a set of model values for particular choice criteria identified at the second stage. Establishing benchmarks comprises the following steps: indication of stimulant:

xoj = {}max iji x

for j ∈ S ,

(6.5)

∈, for jD

(6.6)

for j ∈, N

(6.7)

indication of destimulant:

xoj = {}min iji x indication of nominant:

xoj =

nomx {} iji

indication of the set of model values of given selection criteria: ooon xo xxx= {}1,2,...,

,

(6.8)

where: xoj – model value for each j of selection criteria (“o” in lower case means optimal), xij – characteristic value j of selection criteria, defined for each i of the model variant, S – stimulant set, D – destimulant set, N – nominant set, i = 1,…m – model variants,j = 1, …, n – selection criteria.

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Stage 4. Selection criteria standardization quotient The standardised values of the defined selection criteria are seen as compara tive assessment measures which are calculated for given model variants in rela tion to pre-determined model values. The purpose of comparative assessment is to indicate to which degree a given model variant meets the assumed require ments (expressed through model values). The comparative assessment formula is defined by referring the characteristic value of selection criteria to their model values. The formula which is defined in this manner serves as a standardization tool for selection criteria. These standard ised selection criteria values are at the same time partial performance indicators of design variants. Thanks to the standardization of selection criteria it is permis sible to perform an aggregate assessment of effectiveness; this is because in this situation it is possible to calculate the arithmetic mean (simple or weighted) of the overall effectiveness of each model variant. The selection criteria standardization quotient is seen as follows:

a)

xij zij = max {} xij

for

j∈S ,

(6.9)

j∈D ,

(6.10)

jN ∈,

(6.11)

i

b)

c1)

min xij i x{ij }

for

i x zij = nom ij{} xij

for

zij =

{}

in that: xij ≤ nom i xij ,

{} c2)

zij =

x

ijnomx iji

for

j ∈ N,

(6.12)

{}

in that: xij > nom i xij . The standardised selection criteria values zij range from 0 to 1 for negative xij. As regards the values of zij, the closer they are to unity, the higher the effective ness assessment of model variants defined in terms of j selection criteria. This may be expanded to include negative fields when certain project variants generate losses or demonstrate dysfunctions in their solutions.


88

It must be added that the set of project variants may also contain implement ing solutions as well as model solutions, treated as ideal solutions (appropriate to excellent conditions). xij and xoj values are treated similarly.

Stage 5. Calculation of the aggregate assessment indicators of given project solutions Two formulae of aggregate assessment indicators of project variants are dis tinguished: the simple Zi and the weighted iZ* . These have the following form:

Zi

=1 n , zn ∑=1 ij

(6.13)

j

Z i*1 = W ∑ jn=1 zw j ⋅ ij  

,  

(6.14)

inthat: n1 jjWw==∑,

(6.15)

where: wj – weight of j selection criterion. Standardised values of individual selection criteria (zij) are partial perfor mance indicators of design variants. On the other hand, the aggregate assessment indicators of given project solutions are defined as overall effectiveness indica tors (Zi, iZ* ).

Stage 6. Classification of the aggregate assessment indicators of project solutions Classification indicates a research procedure based on a comparative assess ment of project variants as well as on the quality classification of these solutions. The basis for classification consists of the aggregate assessment of tested project solution indicators (Zi and iZ* ) [A. Stabryła 2005; A. Stabryła 2011]. An example of the gradation of levels of indicator values is presented below (Zi and *iZ): 0.96 – 1.00 distinguishing level (rate 6.0), 0.81 – 0.95 high level of suitability (rate 5.0), 0.61 – 0.80 medium level (rate 4.0), 0.51 – 0.60 sufficient level (rate 3.0), 0 ≤ Zi ≤ 0.50 level of dysfunctionality (rate 2.0),

0 ≤ Z i* ≤ 0.50 – 0.01 to – 1.00 or – k negative dysfunctionality level. Comparative assessment is used not only for standardising the selection cri teria, but also for determining the differences between project solutions; it also indicates the causes of possible dysfunction. However, quality classification in


89

volves the indicating ofproject solution categories on the basis of the gradation of the values of Zi and iZ* indicators. These values are categories or, in other words, quality classes (quantified).

Stage 7. Identifying the optimum project solution The previous stage of research procedures defined the category of each project solution, in other words - its order and ranking. This does not mean, however, that the first project solution in the ranking list will be classified as an optimum solu tion. This is decided by the level of acceptance, approved in the decision analysis, e.g. the high level of suitability (0.81-0.95 according to the previously indicated gradation). The attaining or exceeding of this level will determine the choice of the optimum project solution. One should also take into account the feasibility indicators and the preferred solution risk as well as the significance of its strong and weak points.

6.6. An analysis of functionality as a tool for project assessment Functionality analysis examines the functionality of a given system (area) including partial functions, co-functioning and relationships (interactions). The concept of a function as an action or property should be also referred to co-func tioning and interaction. It can be assumed that the definition of function results from and is determined by the purpose (need) served by a given construct – a technical facility, an economic system, an investment or a designed management system. Obviously, a function can be referred to static objects as well as dynamic ones – procedures, processes and methods. In other words, a function can indi cate a property (characteristic) of a static object as well as a type and character of activities – the phases of a process or dynamic behaviour reflecting the changing conditions of a system (e.g. behaviours of an organization or team members). Co-functioning and interactions are relations which transform partial func tions into complex functions – complex activities which have specific properties (dynamic characteristics). In view of the above, properties are functions which can be static or dynamic. Static properties represent various conditions of a system as well as structural functions – relations, structures of any system in a one- or multi-level classifica tion as well as all types of differentiating factors representing distance, i.e. differ ences and similarities between the components of a system or between systems (design variants). Dynamic properties, on the other hand, reflect the changing conditions of a system, i.e. increases in parameters (variables) over time. They can be expressed as dynamics or growth indices. Dynamic values can also include discounted cash flows. Dynamic properties, in broad sense, include such values as productivity, production capacity and work flows. Ratio functionality analysis has four distinct phases: 1) classification and analysis of a function’s utility, 2) determination of the level of performing a function, 3) determination of the level of costs resulting from performing a function,


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4) analysis of functionality dynamics and the costs of performing a function.

Phase 1. Classification and analysis of a function’s utility A function’s classifier is developed in this phase according to respective func tions and general (basic) functions. In a number of cases classifiers are multi level ones, and the final functions are referred to as elementary functions which are not subject to further divisions. The classification of functions consists in identifying relevant properties or activities (operations) in order to carry out an analysis of the utility of particular functions. It is a qualitative analysis aimed to identify the system’s effective func tions – those which are desirable and necessary. Also, this analysis is an overview of the system with a view to identifying the functions which should be added to the system.

Phase 2. Determination of the level of performing a function The range of performing a function is . The term functionality is used when performance is positively assessed. The performance of functions (D1 and D2) is a universal measurement crite rion used in technical and organization-related analyses. It is based on the follow ing formulas:

D = Nri 1 , when Ni → max,

(6.16)

i

Ni D = r , when Ni → min, 2

(6.17)

i

where: Ni– recommended value for a given function, ri – performance of i–th function, reflecting the actual condition. Also, for D1 ri ≤Ni, and for D2 ri ≥ Ni. The supplementary criteria are function ality and goodness. Functionality (F) is expressed by the following inequality: def

F ≥ Qi ,

(6.18)

Qi – satisfactory performance level. where:

Functionality represents a performance level which is higher than or at least equal to the accepted performance level (Qi). If, for example, Qi= 0.6, perfor mance level higher than or equal to 0.6 indicates that a given system performs its functions in a satisfactory manner or above the required level (which indicates that it is functional). Functionality, then, is the performance of functions within


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the range < Qi, 1>. It is assumed that the recommended value is a marginal value. Therefore, D1 and D2 are within the range < 0, 1>. Goodness (G) is expressed by the following inequality: def

G ≥ Vi ,

(6.19)

where: Vi– lower boundary for satisfactory performance. Goodness represents the quality of a product, service, process or a system. Goodness is a specific case of functionality where Vi> Qi.The introduction of this measure is based on the assumption that errors are inherent in the process of per forming functions. In other words, perfect performance corresponds to 1, while in practice (from a technological perspective) the actual performance level is below the value of 1. The predicted, regarded to be fully satisfactory (not merely satis factory) performance levels, will be referred to in this paper as goodness. To sum up, performance assumes values within the following ranges: ▪ performance of functions D1 , D2 : , ▪ functionalityF : , ▪ goodness G : , ▪ perfect performance: 1. It is also possible to use reference ranges in which, if bi ≤ ri ≤ ui, then D1 or D2 are equal to 1, where bi expresses the lower recommended value and ui – the upper recommended value. When D1 or D2 are within the range Frz,

(6.22)

where: 2) calculation of increase in the costs of performing function ∆ KF:

∆KF = KFp − KFrz ,

(6.23)

KFp > KFrz ,

(6.24)

where: 3) calculation of economic viability ratio η:

KFrz ΔKF

=η Δ FF rz : where: Fp – functionality of proposed solution, Frz – functionality of existing solution,

,

(6.25)

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KFp – cost of performing a function for proposed solution, KFrz– cost of performing a function for existing solution. When η > 1, the proposed solution is economically viable10. It should be noted that functionality can be expressed by comparing technical, organizational, in formation and ergonomic parameters (as function measures). Also, preferential points are applied to express a system’s functionality.

6.7. Project implementation effectiveness indicators Effectiveness, understood in broad sense, is a measure of achieving a given objective. Therefore, it is an indicator of consistency between model parameters (characteristics) and the actually achieved values. Model parameters, for exam ple, refer to plans and organizational undertakings, or specific economic and technical optimal values, thus reflecting the adopted targets. The actual values of parameters, on the other hand, reflect the status of an undertaking, i.e. the actual status of its implementation. It should be noted that in this context the term pa rameter is equivalent to an assessment criterion. Effectiveness indicators are used to assess, in an aggregated form, improve ment projects from the perspective of achieving model parameters (normative or postulated). They are expressed as simple (A1) or weighted (A2) values: 11m =

A1 = m  ∑ i

xib ⋅ xis  x2  , i 

(6.26)

where: m – number of analysed parameters, where i=1, ..., m, xib – actual value of i-th parameter, xis – model (standard) value of i-th parameter, ix2 – square of the larger of the two numbers in numerator,

A =W 1  im= wibisi x⋅    ixx 2

∑ 1

2

,

(6.27)

in that: m

W =∑ i = wi ,

(6.28)

1

where: wi – weight of i-th parameter. Weights can be classified as follows: ▪ 5 – 6 indispensable (dominant) parameters, ▪ 3 – 4 required (basic) parameters, ▪ 1 – 2 useful parameters. 10 When KFp ≤KFrz, effectiveness ratio ε = KFrz : KFp. When Fp > Frz , and ifε ≥ 1, the proposed solution is regarded to be effective.

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When the analysed parameters (related to the actual conditions) and model parameters are not negative values, effectiveness indicators range from 0 to 1. When the analysed parameters have negative values, effectiveness indicators range from k to 1, where – k is a negative number. When parameters are qualitative in character, it is necessary to use a point based scale for assessing the effectiveness of project implementation. An exam ple of such a scale is presented below: ▪ very good 4 – 5, ▪ good 2 – 3, ▪ satisfactory 1, ▪ ineffective 0, ▪ counter-effective –s to –1. It should be added that the model values of parameters are assigned the high est score. The point-based assessment is then translated into partial indicators according to formula (6.26) or (6.27). The final step of the entire procedure is the categorisation of aggregate indica tors A1 and A2: ▪ 0.96 – 1.00 outstanding performance, ▪ 0.81 – 0.95 high-utility performance, ▪ 0.71 – 0.80 satisfactory performance, ▪ below 0.71 unsatisfactory performance.

6.8. References Brigham E.F., Gapenski L.C., Zarządzaniefinansami, PWE, Warszawa 2000 Martyniak Z., Metody organizacji i zarządzania, Wydawnictwo Akademii Eko nomicznej w Krakowie, Kraków 1999 Pawełek B., Metody normalizacji zmiennych w badaniach porównawczych złożonych zjawisk ekonomicznych, Wydawnictwo Uniwersytetu Ekonomicz nego w Krakowie, Kraków 2008 Stabryła A., Categorization as an Instrument in Managing Company Develop ment Capacity, ”Argumenta Oeconomica Cracoviensia” 2005, No. 3 Stabryła A., Wskaźnikowa i punktowa analiza funkcjonalności systemów zarządzania procesowego, “Zeszyty Naukowe UEK” 2013, No. 910 Stabryła A., Zarządzanie projektami ekonomicznymi i organizacyjnymi, Wydawnictwo Naukowe PWN, Warszawa 2011

Monika Szyda1

7. Implementing e-business into maritime business based on maritime e-commerce 7.1. E-commerce role in business Commercial activities function particularly well in e-business. Dynamical de velopment of e-commerce in Poland is expressed not only by the number of Inter net shops, value of goods and services sold therein, nor the proportion of society purchasing in this manner, but also by the range of assortment and businesses present on Internet retail market. E-commerce development is also indicated by the introduction of this sales manner into increasing number of economy branches and businesses. Neither is maritime economy indifferent to e-commerce, as proved by the inception of so-called maritime e-commerce [S.K. Shah 2001]. It is an unmistakable proof of e-business implementation into maritime business. Maritime e-commerce may be defined as performing selling and purchasing operations of widely comprehended maritime business related goods and services over the Internet. Scientific literature does not describe this notion sufficiently. There is a visible deficiency in scientific studies regarding this subject area. It can then be stated, that e-commerce in maritime business still remains an open research area. The aim of this chapter is the identification of e-commerce attributes in mari time business, considering both business-to-business (B2B) and business-to-cus tomer (B2C) relations.

7.2. The genesis of maritime e-commerce Maritime e-commerce has arised around the year 2000 and was dedicated particularly for B2B sector. Maritime e-Commerce Association (MeCA), con stituted in 1999 in Great Britain and consociating maritime business entrepre neurs and technical experts, contributed to the development of this trade manner. This association is supported by the following organizations: IMPA (International Marine Purchasing Association) and ISSA (International Ship Suppliers Associa tion). Due to the development of applications complying with interoperability standards, these associations have committed themselves to the acceleration of economic operations regarding maritime business. MeCA has devised accordin gly own programming language based on XML, called MTML (Marine Trading 1

Gdynia Maritime University.

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Mark-up Language) [Marine Trading Mark-up… 2013; Maritime e-Commerce Association 2014]. This language is used for programming e-commerce plat forms for maritime business, including ship owners, managers, brokers, marine agents and suppliers2. The concept of maritime e-commerce was indirectly supported by the Euro pean Union. The continuation of programs on intelligent mobility in maritime transport was postulated in Commission announcement for Council and Europe an Parliament in 2006. Their project was included in e-maritime initiative [Keep Europe moving… 2006]. This initiative aims at promoting the use of advanced Information Technology for work and performing economic activity in maritime transport sector [E-Maritime 2012]. This project was to be implemented till 2009, yet was extended with planned actions till 2018. Until then interoperability stand ards of ICT systems are to be set and implemented, port operations modified and logistics chains for data and services integrated [The EU e-Maritime Initiative 2009]. It is worth mentioning, that the e-maritime initiative was perceived as a con ception supporting the development of e-business in maritime sector [SKEMA Study… 2009]. E-freight and e-custom initiatives are also perceived as favour ing the development of e-business, since e-freight aims at the reduction of paper documents containing goods information for electronic documentation workflow in maritime transport and e-custom, regards the creation of electronic customs of fice [SKEMA Study… 2009]. Moreover, all these initiatives are beneficial for the development of maritime e-commerce. Increasing use of information and com munications technologies in maritime sector and improved interoperability have contributed to the development of infrastructural base for e-commerce in this business.

7.3. Maritime e-commerce in B2B relations In B2B sector, maritime e-commerce facilitates e-selling, encourages better cooperation between business partners and increases the effectiveness of pro cesses (e-operation), makes it possible to exchange data and documents between co-operators (e-fulfilment), allows e-marketing. Cost saving, communication im provement and funds transfer are also noticed. Maritime e-commerce in B2B sector particularly enables ship orders for goods and services (e-procurement), yet maritime business also uses this trade manner in various maritime transport aspects, including charters, reservations and cargo tracking in bulk transport (i.e. oil, natural gas) and shipbuilding [Why e-commerce? 2013; N.W. Geren 2000; S.K. Shah 2001; H.L. Kite-Powell 2014; U.M. Yürüyen 2014]. Tab. 7.1 contains example platforms with e-maritime commerce solutions for B2B sector. During the research, this type of platforms neither registered in Poland nor serving com mercial business in the Baltic Sea region have been identified. Therefore, only examples of platforms registered in Europe have been included.

Interoperability can be comprehended as the ability to communicate, data exchange and efficient business liaison, feasible due to the cooperation of ICT networks. The notion of interoperability is defined in: [Information Technology.... 2003; Ustawa... 2004] 2

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Tab. 7.1. Selected platforms with e-maritime commerce solutions for B2B Website address Description Shipserv (http://www.shipserv.com/info/) Commercial platform connecting maritime and offshore suppliers, service providers and buyers. Sea Manager II – New Generation Purcha Online ordering system. sing system (https://www.seasupplier.com/ NGPS/) Shipsu (http://shipsu.com/) Commercial platform for sellers and buyers, particularly for equipping ships. Maritime Deal (http://www.maritimedeal. Virtual market, portal for commercial exchanges, com/Home) dispatch, maritime transport for oil and gas, enti re maritime commerce, repair and port services. Booking Manager (http://portal.booking-ma- Website for tourist agencies to reserve charters. nager.com/ wbm2/app/login_register/) Evry (http://www.evry.com/services/)

One Maritime (http://www.onemaritime. com/)

Webworld (http://www.webworld.co.nz/ma rine-ecommerce-website.html) Source: own compilation.

Supplier of solutions facilitating online com mercial transactions - for ship-owners, ship managers, maritime suppliers and speditors. Basic functions: enquiry servicing, orders, order confirmations, e-invoices, delivery documents keeping, management tools, etc. Portal interceding sellers and buyers by circu lating database catalogues regarding goods and services, wholesalers and suppliers, ships and ports. Designing websites for maritime e-commerce.

Therefore, maritime e-commerce has possibilities of development and there are numerous examples of its working in B2B sector. Yet an interesting issue is whether this e-commerce manner in the described business functions and has development perspectives also in B2C relation.

7.4. Maritime e-commerce in B2C relations There undoubtedly exist online shops selling maritime business related assort ment on the virtual market. Analysing WWW websites content of randomly cho sen Polish online shops related to maritime e-commerce market, the following shops can be observed: nautical shops selling boats, kayaks and rafts, shops with water and motor water sports equipment, fishing equipment, spare parts small ships and yachts equipment (i.e. furniture), navigational equipment, specialist electronic equipment, equipment providing safety at sea, diving equipment, spe cialist clothing and footwear, yacht chemicals, washing facilities, maritime lit erature, etc. Also services constitute e-commerce objects. Certain services in maritime ecommerce can be purchased or reserved over the Internet. In the second instance, not always e-commerce features are included, as reservation usually is not legally binding and does not constitute a sale contract. Maritime business related servic es can usually be reserved by simple forms, without technological solutions, such

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as shopping basket. There are not either other functions, as online payments for services. Examples of services currently offered over the Internet by European service providers (Polish examples are scarce) include ferry tickets reservations, yacht charters, berth in marinas, overnight stay and other services in marinas res ervations, sea trips and cruises, swimming, diving and other water sports related courses, steersmen and boatswains services reservations, maintenance services on yachts and ships, catering and insurance services. Potentially also certain port services, such as mooring, hauling, bunkering (supplying a ship with fuel), sew age and rubbish collection, water supply, etc. could be ordered online. The above mentioned examples prove, that the assortment of goods and ser vices possible to offer within maritime e-commerce is wide and varied (tab. 7.2). The analysis of European maritime e-commerce related websites concludes, that sales of physical goods are substantially better developed and fully meet the definition of e-commerce. Services regarding maritime business are more dif ficult to purchase online (usually can be reserved in this manner), yet their offer is wide. Tab. 7.2. The assortment of goods and services in maritime e-commerce for B2C Goods Services ▪boats, kayaks and rafts, ▪ferry tickets reservations, ▪water and motor water sports equipment, ▪yacht charters, ▪fishing equipment, ▪berth in marinas reservations, ▪spare parts, ▪sea trips and cruises reservations, ▪boats equipment, ▪swimming, diving and other water sports, ▪navigational equipment, ▪related courses reservations, ▪maps, ▪steersmen and boatswains services reserva ▪electronics equipment, tions, ▪equipment providing safety at sea ▪maintenance services on yachts and ships ▪diving equipment, reservations, ▪specialist clothing and footwear, ▪catering, ▪yacht chemicals, ▪insurance, ▪washing facilities, ▪nautical services, ▪literature. ▪reservations of port services: mooring, hau ling, bunkering (supplying a ship with fuel), sewage and rubbish collection, water supply. Source: own research.

Numerous assortment categories are visible in maritime e-commerce. With regards to assortment groups enumerated in widely available e-commerce reports, goods sold in maritime e-commerce can be classified into the following catego ries: ▪ sport and tourism, ▪ motorization, ▪ computer and electronics equipment, ▪ clothing and footwear, ▪ hobby, ▪ house and garden, particular categories - furniture and equipment, ▪ books, ▪ groceries.

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It is also possible to describe the purchaser profile with great probability. Re cipients of maritime e-commerce market offer are assumed to be people interest ed in maritime subject area, hobbyists, sailing, fishing and all water sports lovers. Due to the luxury of these activities, the clients are concluded to be averagely or very wealthy, inhabitants of big or average cities. They may be young (around 16-25 years old) or mature (around 40-50 years old), probably more often men, enjoying active past times.

7.5. Conclusion In spite of all, numerous examples of the use of e-commerce in maritime busi ness turn out to be found in both B2B and B2C relations. In Polish realities, maritime e-commerce works particularly within retail e-commerce. The majority of industry Internet shops offer constitute goods, as opposed to rarely appearing services. Maritime e-commerce contains substantial development potential, par ticularly on Polish market. The introduction of e-commerce into niche areas undoubtedly proves its dy namical expansion and searching new markets. E-commerce research, including scientific research, as it can produce fuller and wider view of contemporary ecommerce market, should be focused on niche areas. None business can be indifferent to IT technology. The potential to e-business development is present especially where commercial relations can be created. Certain businesses, such as maritime business, may experience implementation of business solutions with delay or more slowly, yet further development possi bilities are visible. Therefore, the design of appropriate e-business tools and their implementation is required. They are especially necessary in the case of maritime e-commerce services, where obvious faults or deficiencies regarding implemen tation of solutions enabling e-commerce run has been found. Electronic business is an important element of modern economy, applied particularly in commerce. E-commerce is developing dynamically in Poland, incorporating new businesses and offering increasing range of goods and ser vices. Also maritime business is open to e-commerce, as indicated by so-called maritime e-commerce. The Author of this chapter presents herein the genesis of e-commerce in maritime business, regarding especially initiatives, which have led to the development of infrastructural base for e-commerce in this business. The aim of this chapter is the identification of e-commerce attributes in maritime business, considering both business-to-business (B2B) and business-to-customer (B2C) relations. The latter relation in particular considers Polish market condi tions.

7.6. References Booking Manager, 2014, http://portal.booking-manager.com/wbm2/app/login_ register E-Maritime, 2012, http://ec.europa.eu/transport/modes/maritime/e-maritime_ en.htm European Interoperability Framework 2.0 (European Interoperability Frame work (EIF) Towards Interoperability for European Public Services), Commu

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nication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions -Towards interoperability for European public services COM(2010)744, 16 December 2010 Evry, 2014, http://www.evry.com/services Geren N.W., The Future of E-Commerce: Will the Maritime Industry Be Left Be hind?, 2000, http://www.marinelink.com/news/article/the-future-of-e-com merce-will-the-maritime/319519.aspx Information Technology. Learning, education, and training. Management and delivery. Specification and use extensions and profiles, ISO/IEC, Technical Draft Report, Ref.No. JTC1 SC36 WG4 N0070, US SC36 Secretariat, 2003 Keep Europe moving – sustainable mobility for our continent. Mid-Term Review of the White Paper on the European Transport Policy of 2001. COM(2006) 314 final version, 2006, http://eur-lex.europa.eu/LexUriServ/LexUriServ. do?uri=COM:2006:0314:FIN:PL:PDF Kite-Powell H.L., Electronic commerce in maritime shipping: Beneath the hype, a transition is underway, 2014, http://www.marinemoneyoffshore.com/ node/5834 Marine Trading Mark-up Language, 2013, http://www.meca.org.uk/maritime trading-markup-language-mtml.html Maritime Deal, 2014, http://www.maritimedeal.com/Home Maritime e-Commerce Association, 2014, http://www.marinetalk.com/articles marine-companies/com/Maritime-e-Commerce-Association-MAR343.html One Maritime, 2014, http://www.onemaritime.com/ Sea Manager II – New Generation Purchasing system, 2014, https://www.sea supplier.com/NGPS/ Shah S.K., E-commerce driven strategic alliances in maritime business, 2001, http://iacis.org/iis/2001/Shah439.PDF Shipserv, 2014, http://www.shipserv.com/info/ Shipsu, 2014, http://shipsu.com/ SKEMA Study: An introduction to e-Maritime, 2009, http://www.skematransport. eu/uploadfiles/An%20introduction%20to%20e-maritime%20ILS%20%20 5Dec2008.pdf The EU e-Maritime Initiative, 2009, http://www.skematransport.eu/uploadfiles/ SRW2.1%20e-Maritime%20C%20Pipitsoulis.pdf Ustawa z dnia 16.07.2004 r. Prawo telekomunikacyjne (Dz.U. z 2004 r. Nr 171, poz. 1800 z późn. zm.) Ustawazdnia 17.02.2005 r. o informatyzacji działalnościpodmiotów realizujących zadaniapubliczne (Dz.U. 2005 nr 64 poz. 565) Webworld, 2014, http://www.webworld.co.nz/marine-ecommerce-website.html Why e-commerce, 2013, http://www.meca.org.uk/why-e-commerce.html Yürüyen U.M., E-Commerce Applications in Liner Shipping, 2014, http://pdf. aminer.org/000/329/401/mobile_technologies_and_the_value_chain_partici pants_activities_and_value.pdf

Małgorzata Tyrańska, Tomasz Małkus1

8. The process of designing organizational systems – results of empirical research 8.1. Introduction to design problems Problem of design process, derived primarily from experience and knowledge in industrial activity is currently the subject of theoretical and practical consid erations in other activities of company, as well as in social life. The interest in design of organizational systems is associated with the need of holistic, systemic approach to company, particularly in terms of continual adaptation to changing conditions in the environment. It is also important in terms of integration of ac tivities between cooperating companies. Although the access to knowledge of design in different areas of the enterprise is wide, the approach to this problem in enterprises is significantly different. In general, there are examples of companies in which the design process of organi zational systems is of intuitive nature, as well as there are others, in which the methodology of designing such systems is known and implemented. The objective of this chapter is to present theoretical and pragmatic approach es to the process of designing organizational systems of companies2. In order to achieve that objective the overview of approaches to the design process on the basis of the literature is presented at the beginning. In further part, the character istic of the surveyed enterprises is included. The essential part of the chapter is focused on the analysis of approaches to the process of designing organizational systems, adopted in surveyed companies.

8.2. The overview of approaches to the problem of design As a starting point of discussion in this section, a general approach to design process should be presented. Using the approach of W. Tarnowski, the issue of design can be defined as all efforts to devise the way of satisfying the specified needs [1997, p 20]. The design process can be regarded as the element of a larger system design, which consists of designing entity (system designed), the subject of design and the design process. The result of the design is, however, a collection of information necessary for the physical implementation of the designed object. Cracow University of Economics. The chapter has been prepared in the framework of research project funded by the National Scien ce Centre, decision no. DEC-2011/03/B/HS4/03585. 1

2

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In considerations concerning the design of organizational systems of company it seems to be appropriate to distinguish different types of design, reflecting the essential aspects for considerations of design process, implemented in the compa ny. These types of design may include engineering, social and economic design, as well as the approach to design used in the area of management. The development of knowledge in the area of design derives largely from the experience in the industry, which is reflected i.e. in the work of the C. Bąbiński [1969] and W. Gasparski [1978]. It seems appropriate to begin the presentation of approaches to design process with the characteristics of engineering design, which is also named technical design. It may be defined as a description of technical ob ject, intended to perform, its design feasible to do (model or documentation), and description of a way (method) of execution. Mechanical product design, design of products of construction projects, designing processes (technology, energy, etc.), as well as design of industrial plants can be distinguished among the types of engineering design. Design of mechanical products requires prior information about the tasks and the nature of work of construction. After the preliminary analysis several design concepts should be developed in the form of preliminary schemes, drawings and descriptions. Studies and preliminary work are important in the case of develop ment of other structures, different from previously used. The concept of new design may arise as a result of analogy to existing structures or on the basis of research and experiments, either through original idea. Based on the concept, the constructive assumptions are developed. Then next steps are taken into account: the development of the preliminary design, prototype development, prototype, prototype testing, the development of the project technical developments, devel opment of design documentation and development of operational documentation. Design of construction products may include products or objects. Among the products, components, semi-finished products are mentioned. Objects are con struction products distinguished in documentation, in the cost estimation and also territorially. Design of products has characteristics of structural design and is completed with the description of technological process, associated with the im plementation of products. Design of objects is of architectural and construction design. Architectural design is justified by the need to link the functional issues with aesthetic form. Designing buildings usually extends also on the technologi cal process of building. Therefore, the standardization and typification are in creasingly important problems [C. Bąbiński 1969, pp. 23-28]. The next of mentioned types of design concerns processes. These processes can be examples of separate product design or a part of more complex projects. As a matter of design, energy, information, material processes can be presented. Among types of engineering design, distinguished earlier in the chapter the type concerning industrial plants seems to be the most complex. It consists of: production program, design of technological processes, individually ordered ma chines, production lines, power processes and equipment, control and automa tion of processes, as well as design of quality control of products, transportation, storage, maintenance and repair, the organization of construction and installation, start-up of the plant, also plant operation [C. Bąbiński 1969, pp. 44-45].

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In conclusion to the characteristics of engineering design it can be noted, that the basic assumption for this type of design is to strive for achievement of such attributes of product, as required performance, effectiveness and efficiency. In addition also economic, humanistic, aesthetic and organizational aspetcs should be included. The economic aspect plays the leading role. It is taken into account at the stage of project formulation and evaluation of its effectiveness (income in vestment efficiency, value analysis, cost structure of manufacturing). Humanistic aspect of the design involves solving problems in the field of ergonomics, psy chology and physiology. Aesthetic aspect influences market value of the product. Finally, the organizational aspect focuses on the operation of designed systems. Explaining the specificity of social design, it is worth to use the approach of G.A. Antoniuk, who presented two ways to recognize this type of design [1983, p. 112]: ▪ wide – it is the way to recognize the social design as the process of develo ping optimal models of social problem solving, characteristics of social systems or their circumstances, components, etc. Such presentation concerns systems, that are associated with any of human relationships, such as the economic, poli tical, legal, cultural system (a variant of social design is the design of economic, organizational, managerial, legal, engineering and psychology, etc.), ▪ narrow – social design is called the design of social welfare, which develops systems, taking into account the social relationships arising in every human inte raction, in human relations associated with the assimilation of important value in the point of view of social life (for multiple entities), in the social system, prede termined in the design (as opposed to the previously mentioned social systems) the individual occurs in a role, in which the system of cooperation and functions influenced by this system, resources of activities and processes are the basis, the way and the form of existence of mentioned individual in society. The connection between the engineering activity and social design is also worth taking into account. Engineering activity in the social sphere is treated as targeted development of different social systems, even named as social building [G.A. Antoniuk 1983, p. 112]. The specificity of social design is influenced by the characteristics of the en vironment of designing. These environmental issues can be distinguished on the basis of the approach of S. Nowak [2007, pp. 466-467]: ▪ the existence of centres of social and economic decisions that may affect some of the business processes and the associated increase in national income, it depends on the decisions concerning the planning of economic development, but also on other external factors, which in extreme cases can overcome the effects of the decisions taken, ▪ more or less spontaneous nature of occurrence of some processes (demogra phic, fashion, specified way of existence, nutrition) in some social groups, ▪ the need for efforts to determine in certain processes the ranges possible, due to the current situation, acknowledged to be the initial (determination of bo undaries of the real possibilities for the implementation of the plan/project for considered trend), ▪ making the most beneficial choice, based on the confrontation of theoretical knowledge and the resulting, practical predictions with existing system of value,

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in the total number of variants the one should be chosen, that is closest to a sys tem of value, recognized in a society. In considerations concerning economic design it is worth to distinguish design to the type named as economic, due to its nature and the economic aspect of design of other projects (technical and organizational) implemented in company. In eco nomic science, but also in the practice of governance the design concerns mainly models, that are created through the use of hypothetical-deductive approach. The features of these models are isomorphism and isofunctionalism (compared to the modelled object or part of reality), simplification (concerning omitting less sig nificant features), existence in different proportions than the modelled object, representing existing or visualizing projected objects [S. Stachak 2006, pp. 252 253]. Designing economic models, one can distinguish physical models (e.g. bread board) and nominal models (created with word and iconic marks, also figures), which may be imitative (a copy of an existing object or fragment of a complex reality) or design (requested model of a future, complex subject). S. Stachak also noted that in the area of economics nominal models are used primarily to create economic theories on the hypothetical-deductive way. In addition to the problems of creating economic theories, in economic sci ence of practical nature the object design are models, which allow the use of real and optimal ways to achieve objectives set by economic agents or consumers. Optimization models belong to this group. They are tools for economic progress and enable the implementation of improvements to the existing situation, in con trast to models previously mentioned, created for the purpose of economic pro cesses, which were primarily used to indicate how to maintain the status of these processes with the past, required features. Patterns of objectives in optimization models can be average, extreme or ideal [S. Stachak 2006, p. 254]. According to approach described by both S. Stachak [2006] and H.G. Adamkiewicz-Drwiłło [2008] econometric models, that allow knowing the quan titative relationship between economic phenomena and enabling predictive infer ence are of particular importance in economic sciences. Such models are used for complex business objects, structures of these objects and their processes [S. Stachak 2006, p. 255; H.G. Adamkiewicz-Drwiłło 2008, pp. 182-183]. Using the objective of design as a criterion (including the creation of the model) one can distinguish diagnostic models, prognostic models, and models supporting decision-making processes. It is worth also to pay attention to the distinction of important types of econometric models, used in economics: causal, sympto matic, trend, static, dynamic, linear, nonlinear, simple, recursive, interdependent [S. Stachak 2006, p. 255]. Among economic projects also a distinction between those that are investment projects and others that relate to economic education of different social groups can be done. Featured projects, concerning investment may relate to the country’s economy as a whole, one sector, as well as individual companies. In the first and second of these cases nature of design can be described as macro systemic (re search of market of goods, labour market, design of monetary policy instruments, the draft of central budget). In the case of a single company, or its parts the design


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is of micro systemic character (analysis and optimization of costs, optimization of structure of production or services, purchasing policy, pricing strategy). Concerning the problem of identification of the characteristics of design in the area of management the approach of I. Durlik [2007] can be used. Presenting the general attitude to design in company the author treated this process as necessary sequence of activities, necessary to achieve the effect of design, consisting of a specific sequence of analysis, synthesis, evaluation and decision. The presented approach takes into account the possibility of examining it in two sections [2007, p. 22]: ▪ total, closed (integral) development cycle, when it is assumed, that the pro duct of design is a form of material object proposed (functioning product, pro cess, manufacturing system, plant or industrial facility), such a solution combines designing and implementing units, proper project design is not isolated as a pro duct and sale item, ▪ open (particular) development cycle, when it is assumed that the product of design is a set of basic technical information, needed to develop and manufacture the material form of the designed object. The author pointed out, that the first of these types is characteristic for market economy. Explaining the essence of project management I. Durlik stated, that this is a development undertaking, which comprises the steps of preparing the information and material realization. It can be argued, that if project management can be seen as an organizational undertaking, which leads to the execution of product of design, the design is a preceding stage, resulting with the collection of information, needed for the technical preparation and execution of the product of design (good or service). According to information provided it can be assumed, that in the aspect of or ganizational management the design involves the use of appropriate approaches, methods and techniques in the activities leading to the preparation of a set of information to perform the product of project. Therefore the design is particularly associated with the functions of management known as planning and organizing. This applies both to determine the required characteristics of product, from the point of view of objectives of project, as well as the description of types and ranges of tasks, contractors and scopes of cooperation with external entities and also the development of mechanisms to coordinate and control them. Considering the approach presented by I. Durlik it should be supplemented, that appropriate design, understood as preparation of complex information is often assigned to advisory, consulting firms, working for the main contractor of the project, under stood integrally: construction, assembly companies, and many other people with a variety of qualifications. Presented approach to describe the essence of design and association of design primarily with the functions of planning and organizing the management is also reflected in the work of A. Stabryła [2011]. Based on this attitude one can also at tempt to draw the line between design and subsequent project management, indi cating the effect of the design process. As a product of design the author indicated the result of creative work of man, which is mental or material preparation for the process of implementation. Describing the essence of the product of design A. Stabryła made also a distinction between functions and properties of product

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of design. Specified actions predicted for defined design task are described as functions. The project was treated as a description of the functions that express the dynamics of product of design. Properties are treated as a feature or set of features of a product which is the subject of creation. Properties are in this sense determinants, that define static of product of design [2011, p. 72].

8.3. Research assumptions There is the assumption made in presented study, that design of companies organizational systems is the process of making decisions, in which the methodo logical approach of designers – both executives and employed, external experts (consultants) – play the important role3. On one hand shaping of organizational systems involves people, mostly man agers and external experts (organizational consultants). Relatively stable dispo sitions of participants in the design of the organization can be described on the basis of adopted attitudes towards general heuristic procedures, including assess ment of usability of strategies, principles and methods of design. On the other hand, the design of the organization is conditioned by the nature situational fac tors, among which play a significant role not only environmental factors (custom ers, suppliers, collaborators, competitors), but also the size of the organization, the activities, technologies employed, and above all, a strategy considered as a fundamental factor influencing structures. The analysis of Polish literature shows that the design process was the subject of research conducted in 2012 by a team of Project Management Department in Warsaw School of Economics under the supervision of M. Trocki. In particular, the aim of the study was the analysis and critical assessment of the concept, prac tice and experience in the field of evaluation of projects, leading to the creation of a comprehensive and coherent approach to project evaluation [Ocena projek tów… 2013,p. 7]. There are also examples of research in area mentioned above, conducted by foreign authors, presented in literature. The subject of example of empirical research was the assessment of practical use of the tools and techniques specific to project management by 2339 specialists [C. Besner, B. Hobbs 2012, pp. 24-46]. The aim of another study was to identify factors that determine the effectiveness of project management [K. Yen-Lin 2010, pp. 60-70]. There is also presentation of results of study, which contribute to the theoretical development of project management in the field of organizational change [M. Aubry et al. 2010, pp. 766 778]. There are also the results of empirical study on the use of project management standards in the German and Swiss companies, presented in literature. The results are based on statements made by 234 participants in an online survey conducted in 2006. The study found that standards are rarely used in project management in German and Swiss companies. In fact, they are usually modified before using [F. Ahlemann, F. Teuteberg, K. Vogelsang 2009, pp. 292-303]. The research was conducted in the period from November 2012 to March 2013 by the team of the Department of Management Process in Cracow University of Economics, under the supervision of A Stabryła.

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In this study, a questionnaire addressed to representatives of management was used. The questionnaire contained a set of questions concerning especially the size and kind of companies’ activity, questions allowing the identification of ac cepted approach to the design of organizational systems in companies. The ques tionnaire was sent to senior managers in the surveyed units.

8.4. Characteristics of surveyed companies Companies surveyed are divided into three groups, concerning their size. A basis for classification of enterprises in the European Union is used. Small en terprises, employing between 10-49 employees, medium enterprises of 50-249 employees, and large companies, employing over 249 people are distinguished. There is also a criterion for the division of surveyed companies, concerning main type of activity. From this point of view manufacturers, traders and service pro viders are distinguished. The structure of surveyed companies, taking into ac count the criteria for the size and type of activity is shown in fig. 8.1. Large

Medium

Small

0

20 Manufacturing

40 Trading

60 Service

80 Noindication

100

Fig. 8.1. Structure of surveyed companies Source: own research.

Most part of surveyed companies were small enterprises, which accounted for 42,13% of all units. Medium sized enterprises accounted for 26,85% and large 31,02%. As mentioned earlier, within each category companies are divided by type of basic activity: production, trade and service. Most part of small com panies represents service activity. This type of activity is declared by 42,86% of units. Trade is the main activity of 30,77% small companies, 21,97% are of manufacturing activity. 43,10% of medium sized enterprises are engaged in man ufacturing, 37,93% in services, 15,52% declare trade as the main activity. The leading activity of half of large enterprises is manufacturing (52,24%). About a quarter of large companies provide different types of services (25,37%). Other are engaged in trade (22,39%).


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8.5. Attitudes to the process of design of companies’ organizational systems – research results The scope of research includes following issues: identification of starting point in the design of organizational systems, description of the design process, approach to develop an optimal design of organizational system and definition of the role of organizational strategy in the design process. Problems included in the study, as well as answers on how to solve problems, as the subject of choice among respondents are presented in tab. 8.1. The results of research show that analysis of existing, organizational solu tions, their subsequent modification and improvement is treated as starting point in design of organizational systems for approximately 70% of all surveyed com panies. In particular, this approach is used by 67,03% of all small units, 65,51% medium-sized companies and 68,66% of all large companies surveyed. Among small units taking analysis of existing solutions as a starting point in the design process of organizational systems, trade (27,47%) and service (26,37%) companies are dominant (fig. 8.2). Among medium sized units produc tion (31,03%) and service (31,03%) companies are major part taking analysis of existing solutions as a starting point in the design process (fig. 8.3). As to group of large enterprises such approach is used mainly by manufacturing units (34,33%). It is shown on fig. 8.4. Tab. 8.1. The scope of research conducted Problem Options of answer point design The starting process of organiin the ▪determination of ideal solution, which can be adjusted to the capaci ty of the enterprise, zational systems ▪analysis of existing organizational solutions, which can be modified and improved The process of design ▪programmed – tasks concerning design are pre-defined and structu red, ▪adaptive – design steps are carried out according to the situation ▪stage development and evaluation of variants of solutions, to find of The anmethod optimalofdesign creation of the best option, organizational systems ▪development of a set of solutions feasible, then the evaluation and selection of the best variant the organization Thedesign role ofprocess strategyofin ▪company’s strategy affects the design of organization, ▪company’s organization affects the process of strategy formulation Source: own research.

On the other hand the remaining approximately 30% of surveyed companies adopt definition of ideal solution, as a starting point in the design process of or ganizational systems. It is then adapted to the capacity of enterprise. In particular, studies have shown, that the development of ideal solution is the starting point of the design process in 15,38% of small service enterprises, in 15,52% of the medium-sized, trading companies and in 17,91% of large manufacturing compa nies (fig. 8.2, 8.3 and 8.4).


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100,00 80,00 60,00 40,00 20,00 0,00 Small, manufacturing

Small, trading

Definition of ideal solution

Small, service

Analysis of existing solutions

Small (no indication)

No indication

Fig. 8.2. Starting point of designing process in small enterprises Source: own research. 100,00 80,00 60,00 40,00 20,00 0,00 Medium manufacturing

Medium trading

Definition of ideal solution

Medium service


Fig. 8.3. Starting point of designing process in medium sized enterprises Source: own research. 100,00 80,00 60,00 40,00 0,00 20,00 Large manufacturing Definition of ideal solution

Large trade

Large service


Fig. 8.4. Starting point of designing process in large enterprises Source: own research.

Results of research showed also, that the majority of surveyed enterprises use the adaptive way to design organizational systems. It means, that design activities are implemented depending on the individual situation of company. In particular, adaptive approach is used in 73,63% of small units, 58,63% of medium-sized companies and 62,69% of large companies. Among small units those, specialized in services (29,67%) are dominant (fig. 8.5). In addition, adaptive approach is


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most often used in medium-sized (24,14%) and large (32,84%), manufacturing enterprises (fig. 8.6 and 8.7). In contrast, pre-set order of process in designing organizational systems is characteristic for about 30% of all surveyed companies. Design steps are pre determined in 26,37% of small companies. Such an approach is also chosen by 39,66% of medium-sized firms and 37,31% of large units. In the context of small firms pre-set process of design of organizational systems is used by 13,19% of service units. The programmed process of design of organizational systems is also represented by 18,97% medium-sized and 19,40% large manufacturing com panies (fig. 8.5, 8.6 and 8.7). 100,00 80,00

60,00 40,00 20,00 0,00

Small manufacturing

Small trading Preset

Small service


Adaptive

Fig. 8.5. Approach to design process in small companies Source: own research. 100,00 80,00 60,00 40,00 20,00 0,00

manufacturing Medium

Medium trading

Preset

Adaptive

Medium service

No indication

Fig. 8.6. Approach to design process in medium-sized companies Source: own research.

Medium (no indication)


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100,00 80,00 60,00 40,00 20,00 0,00 Large manufacturing

Large trading Preset

Large service

Adaptive

Fig. 8.7. Approach to design process in large companies Source: own research.

The dominant way to develop the optimal design of organizational system in surveyed enterprises is to determine a set of solution variants feasible, then the evaluation and selection of the best variant. This approach takes 49,45% small units, 51,72% medium-sized and 65,67% large companies. Between small (19, 78%) and medium (25,86%) companies dominate service companies. Such ap proach is used also by 35,82% of large manufacturing firms (fig. 8.8, 8.9 and 8.10). On the other hand, 48,35% of small units, 48,28% of medium-sized firms and 34,33% of large companies use the way to create optimal design of the organi zational system through progressive development and evaluation of alternative solutions until finding the best option. Such a method to develop the optimal de sign is most commonly chosen by small service companies (23,08%), 25,86% of medium-sized units and 16,42% of large manufacturing firms (fig. 8.8, 8.9, 8.10). 100,00 80,00

60,00 40,00 20,00 0,00 Small manufacturing

Small trading

Progressive development of solution

Small service


Development of set of variants feasible

No indication

Fig. 8.8. Approach to development of optimal design of organization in small companies Source: own research.


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100,00 80,00 60,00 40,00 20,00

0,00

Medium manufacturing

Medium trading


Medium service



Fig. 8.9. Approach to development of optimal design of organization in medium-sized com panies Source: own research. 100 80 60 40 020

Large manufacturing

Large trading


Large service


Fig. 8.10. Approach to development of optimal design of organization in large companies Source: own research.

Analysis of collected data shows also, that the strategy affects the process of designing organizational systems in most of the companies. Such approach is characteristic for 52,74% of small firms, 79,32% medium-sized and 88,06% of large companies. This approach dominates in 18,68% of small service compa nies, 36,21% of medium-sized service units, also in 44,78% of large manufactur ing companies (fig. 8.11, 8.12, 8.13). In turn, the company’s organization has an impact on the formulation of strat egy in 46,16% of small units, 18,96% of medium-sized firms and in 11,94% of large companies. Fig. 8.11, 8.12 and 8.13 show also, that mentioned approach is used mostly by small service units (23,08%), medium-sized manufacturing com panies (10,35%) and 7,46% of large manufacturing enterprises.

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100 80 60 40 20 0 Small manufacturing

Small trading

Small service


Strategy affects the process of design of organization Organization of company affects the process of strategy formulation No indication Fig. 8.11. Strategy – organization design relationship in small companies Source: own research.

60 40 20 0

100 80

manufacturing Medium

Medium trading

Medium service


Strategy affects the process of design of organization Organization of company affects the process of strategy formulation No indication Fig. 8.12. Strategy – organization design relationship in medium-sized companies Source: own research.

100 80 60 02040

Large manufacturing

Large trading

Large service

Strategy affects the process of design of organization Organization of company affects the process of strategy formulation Fig. 8.13. Strategy – design of organization relationship in large companies Source: own research.

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As it is shown in figures presented in this part of the chapter, there were also several cases of questions without indication included in survey. Taking into ac count their share in the total amount of questions and received questionnaires it can be concluded, that there is little influence of such questions on the overall picture of research results.

8.6. Conclusion There is a wide range of technical, social, economic and managerial approach es to the design process, presented in literature. Regardless of the field of design, such approaches facilitate a systematic way to implement process of design. They turn attention to the need of taking into consideration such principles as economic rationality and purposefulness. They also emphasize the need to identify and reduce different kinds of risk. The use of checked approaches in the design process leads to the reduction of intuitive and reckless actions. It allows to successfully implement projects facilitating the development of entire organization. The study showed approaches to design organizational systems, adopted in most of the surveyed enterprises: ▪ the starting point in the design of the organization is to analyse the existing organizational solutions, their subsequent modification and improvement, ▪ the process of design of organizational systems is implemented primarily with adaptive way, ▪ optimal design of organization is usually developed through the preparation of a set of solutions feasible, then evaluation and selection of the best variant, ▪ corporate strategy affects the process of design of organizational systems. Approach to the problem of design of organizational systems, identified in the research indicates a large extent of conservative attitudes of managers responsi ble for implementation of the design process in surveyed enterprises. The design process is pre-set very rarely. It is usually undertaken, as a result of environmen tal pressures for change. It is related to the reactivity of managers. Such reactiv ity, together with tendency to compete and fragmentation in solving problems were highlighted by F. Kofman and P. Senge, among factors which affect lower performance of companies [1993, pp. 7-10]. Moreover, only one-third of the surveyed enterprises start from the develop ment of an optimal pattern in the design process. The starting point in the design of the organization is to analyse the existing solutions in most of surveyed enter prises. Such approach reduces the dynamics of development of the organization, because it leads only to the modification and improvement of existing organiza tional solutions. With rapid changes in the environment such an approach may lead in extreme conditions to the reduction in market position of company. It is worth noting, that in most companies the creation of optimal design of organization is based on the development of a set of feasible variants, their evalu ation and selection of preferred one. Such a solution should be considered advan tageous because it allows creating a complete picture of effects obtainable in each variant and lost effect of variants, which are not selected. In the selection also the importance of individual effects for the company is taken into account. The effects of the research also indicate that in most companies surveyed the strategy affects the design of organization. This is consistent with the current


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approach to shape company’s activities and to adapt these activities to the rapid changes, occurring in the business environment. Assumptions, concerning the results of activities are treated as starting point and then the organizational re quirements to facilitate the achievement of such results are determined. Such an approach can reduce the risk of deterioration of market position, influenced by creation of the pattern on the analysis of existing solutions. It can be concluded, that the level of awareness, concerning the process of the design of organiza tional systems in the surveyed enterprises may encourage the development and strengthening of market position of these firms.

8.7. References Adamkiewicz-Drwiłło H.G., Współczesna metodologia nauk ekonomicznych, Wydawnictwo „Dom Organizatora”, Toruń 2008 Ahlemann F., Teuteberg F., Vogelsang K., Project management standards – Dif fusion and application in Germany and Switzerland, “International Journal of Project Management” 2009, Vol. 27 Antoniuk G.A., Metodologiczne problemy projektowania systemów społecznych, [in:] Projektowanie i systemy. Zagadnienia metodologiczne tom V, W. Gaspar ski, D. Miller (eds.), Zakład Narodowy imienia Ossolińskich, Wydawnictwo Polskiej Akademii Nauk, Wrocław, Warszawa, Kraków, Gdańsk, Łódź 1983 Aubry M., Müller R., Hobbs B., Blomquist T., Project management offices in transition, “International Journal of Project Management” 2010, Vol. 28 Iss. 8 Babiński C., Elementy nauki o projektowaniu, Wydawnictwa Naukowo-Techniczne, Warszawa 1969 Besner C., Hobbs B., An Empirical Identification of Project Management Tool sets and a Comparison Among Project Types, “Project Management Journal” 2012, Vol. 43, Issue 5 Durlik I., Inżynieria zarządzania cz. I. Strategie organizacji produkcji, Nowe koncepcje zarządzania, Wydawnictwo PLACET, Warszawa 2007 Gasparski W. Projektowanie. Koncepcyjne przygotowanie działań, PWN, War szawa 1978 Kofman F., Senge P.M., Communities of Commitment: The Heart of Learning organizations, “Organizational Dynamics”, 1993 Vol. 22, Iss. 2 Nowak S., Metodologia badań społecznych, Wydawnictwo Naukowe PWN, Warszawa 2007 Ocena projektów – koncepcje i metody, M. Trocki, M. Juchniewicz (eds.), Ofi cyna Wydawnicza Szkoły Głównej Handlowej w Warszawie, Warszawa 2013 Stabryła A., Zarządzanie projektami ekonomicznymi i organizacyjnymi, Wydawnictwo Naukowe PWN, Warszawa 2011 Stachak S., Podstawy metodologii nauk ekonomicznych, Książka i Wiedza, War szawa 2006 Tarnowski W., Podstawy projektowania technicznego, seria: Wspomaganie kom puterowe CAD/CAM, Wydawnictwa Naukowo Techniczne, Warszawa 1997 Yen-Lin K., The Driving Forces For Design Project Effectiveness, “Journal of Computer Information Systems” 2010, Vol. 50 Iss. 2

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Jolanta Walas-Trębacz1

9. Customer’s role in creating the value chain – research results2 9.1. Added value creation process Nowadays, enterprises are forced to identify and change the entire value chain for customer3. Activities of enterprises related to creating values depend, inter alia, on adding them to individual value chain (from initial suppliers to final cu stomers). At each stage some additional value is created, which is offered by sellers and purchased by buyers, called value added. It is considered in two basic dimensions: value added for customer (customer’s benefits in relation to custo mer’s costs) and value added for enterprise (enterprise’s benefits in relation to co sts incurred by it) [R. Matwiejczuk 2006, pp. 43-44]. The value added for custo mer, which from its point of view is provided and created by product, represents the outcome of the creating value process by the enterprise [P. Blaik 2001, pp. 117-118]. It also constitutes an assessment measure of implemented actions by the enterprise. The value added for enterprise is the difference between the total value of sales (price) and the value of purchased materials and services4. In the creating value process, it is important to define appropriately the follo wing steps, in which as a result is realized value to customers. Individual activi ties might directly or indirectly contribute to offer specific value for customers at the same time. One of the important tools showing the process of “adding” value to the pro duct is value chain5. It is an ordered sequence of different types of functions (ope rations), generating value of the product, which is determined by market relations Cracow University of Economics. The chapter has been prepared in the framework of research project funded by the National Scien ce Centre, decision no. DEC-2011/03/B/HS4/03585. 3 The need for redefinition of the value chain emphasizes A. Jaki due to the perception of the custo mer as an active creator of the enterprise, not just a passive recipient of its offer, and the recognition that the customer is the starting point to build a modern value chain [A. Jaki 2012, p. 82]. It became a contribution to come into existence the concept of customer value management and associate it with the concept of value based management [M. Szymura-Tyc 2002, pp. 53-61]. 4 Apart from value added for customers and enterprises, there are several other dimensions of va lue: for suppliers, co-operators, distributors, employees, shareholders, etc. 5 Concepts explaining the process of creating the value added include: M.E. Porter’s value chain [1985, p. 37], cycle of creating value by K. Fletcher [Marketing. Theory and Practice 1985, p. 295], Ph. Kotler’s sequence of creating value processes [1994, p. 85], procedural value chain by D. Cu shman and S. King [J. Dytwald 1997, pp. 36-38].

1

2

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between the enterprise and the buyer. This is a sequence of interrelated (serial or parallel) phases of the management process and executive process referred to the particular sector of the enterprise’s activity [A. Stabryła 2007, p. 165]6. The purpose of this article is to present the issue of forming enterprise value chain from the customer’s perspective, meaning of identification process of customers’ needs and preferences in creating an effective enterprise value chain, and showing fragments of research results and attempting to answer the follow ing questions: ▪ what values are the most appreciated by today’s consumers in the product offer? ▪ what directions and extent of changes are taken by surveyed enterprises under the influence of customers in the structure of internal value chain? ▪ does the client actively participate in the process of creating a new product? ▪ how often the analysis of customer’s needs and preferences is made and for what purposes analysis results are used? ▪ what is customer’s role in improving the structure of the enterprise value chain? ▪ what benefits are achieved by enterprise through building and keeping rela tions with customers?

9.2. The enterprise value chain from the customer’s perspective Value based management that creates enterprise’s organizational system con sists in assessing efficiency of their operation from customers’ perspective (reci pients of results) and executive possibilities appointed by the potential that the firm has. The strategic capacity of the organization is determined by the number and quality of individual resources (components) and their proportions, arran gement and connections, or structure. Skills which distinguish enterprise in the market can be achieved in different value chain units and connections between them. This concerns the enterprise value chain, but also value chain of: suppliers, distributors and customers, with whom the value chain of the enterprise is closely linked, forming so-called value-system7. Basic operations occurring in the value chain have strategic importance for the enterprise because as a result of their implementation is created value added. The key role of the value chain is assigned within areas of R&D, production, logistics, as well as additional services provided to the customer, is associated with the for mation of certain types of utility for the customer: the usefulness of the form (the guise), the usefulness of space and time, and the usefulness of having [P. Kotler 2005, pp. 70-71; P. Blaik 2001, pp. 144-145]. 6 The concept of value chain, also known as economic chain [P. Drucker 1979, p. 120], is closely linked with the value added arising in the downstream business processes. 7 The creating value-system arises and develops as a result of the extension of the value chain structure in the enterprise for the phase (chains) creating value through its various suppliers and customers. It is a display of value chains integration of different market participants [P. Blaik 2001, pp. 117-118]. These entities co-implement the process ofvalue creation, which result is the forma tion and implementation of value added for each link in the value-system [R. Matwiejczuk 2006, p. 57].

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The study of the contemporary model of the value chain should start with the customer – resources of the enterprise and its core competencies appear at the end. The most important are needs and priorities of customers – feature of this attitude are options that allow optimally satisfy them. As a result, it is abo ut a radical reversal of the traditional value chain (starting from pre-production function) to the modern chain, in which the customer becomes the first link and a causative factor determining the rest of activities undertaken in the company [A.J. Slywotzky, D.J., Morrison, B. Andelmann 2000, p. 36; J. Webb, Ch. Glie 2001, p. 14]. Fig. 9.1 shows three groups ofbasic processes in the value chain.

Fig. 9.1. The basic internal processes in the overall value chain model Source: R.S. Kaplan, D.P. Norton 2002, p. 99.

Analysis of the value chain in order to bring certain benefits to management staff should be carried out according to well-thought-out and developed methodo logy, in which the main subject of study are primarily: customers’ needs (current and potential); processes (basic and auxiliary) influence on creating value added; costs incurred for the maintenance and efficient implementation of processes and their assessment in terms of optimization opportunities with respect to achieved effects; available resources and competencies in terms of competitive advantage and maintained relations inside and outside of the enterprise.

9.3. Identification of customers’ needs and expectations of the enterprise as a key stage of forming an effective value chain Contemporary competition in the market is a struggle for the customer. The basis of all business decisions about choosing the profile of production, methods of management and manufacturing, sales, market communication, and conduct market research, ceasing to be internal technological and organizational determi nants of the enterprise, and first of all, becoming expectations and preferences of buyers, which are translated into revenues and profits of the enterprise8. Value category is a key concept in management theory because survival and long-term success of enterprises in the market is determined by a fixed develop

The basis for achieving and maintaining a competitive advantage based on the value chain can be a choice of particular „bundle of values” which the enterprise intends and is able to provide to customers. M. Treacy and F. Wiersem distinguished three bundles of values and corresponding to them, so-called, discipline values: operational excellence, product leadership and customer intima cy [J. Dytwald 1997, pp. 50-53; A. Koźmiński 2004, pp. 63-65]. 8

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ment and supply the correct (expected) value to customers9. Simultaneously, this category is ambiguous because it can be interpreted in many different dimensions (economic, marketing, sociological, psychological, technical, axiological), and its perception depends mainly on the recipient and his expectations. Comprehensive assessment of the substance of value from the customer per spective was made by P. Kotler. According to him, value for the customer is offering sum of the utility, which is assessment, made by him, of the overall ability of the product/service to meet the needs [2005, p. 33]. It is the difference between the amount of benefits that he expects from the product/service and co sts associated with its acquisition. Customer’s benefits are reflected in attributes expected by him, which product/service should have and in the overall image of the enterprise. While costs include: purely financial expenses and costs of waste of time, energy or mental costs. The customer determines the current value of the product/service by comparing it to the value of competitive offers and makes a final decision on the acquisition of a specific product/service10. The value for the customer is category which is: subjective (depending on in dividual needs and customer feedback), dynamic (time-variable and determined in individual markets), perceived (in the assessment of the expected and received value by the customer are counted the costs and benefits perceived by the cu stomer), directly immeasurable (the basis for measuring the level of customer’s satisfaction) ) [M. Szymura-Tyc 2004, p. 197], complex (is a bundle of tangible and intangible benefits and costs received and incurred at all stages of the deci sion-making process of purchase and consumption of the product), situational (the same buyer can in different situations differently assess the benefits and co sts), conditional (revealed only on the assumption that the product is purchased and consumed by proper customers in the proper situation at the proper time) [R. Seweryn 2012, p. 25]. The initial state of creating value process is determined by appropriate, adequ ate orientation of the whole system (value network, enterprise) to meet the iden tified requirements and implementation as a result of the overall transformation process desired by the customer values. Course of creating value process must be accompanied by continuous cooperation between the entities being participants of the system in such key processes as: designing and improving of the product, appropriate delivery and customer service [K. Rutkowski 2000, pp. 26-27]. Fig. 9.2 shows the customer’s place in the system of creating value. Customers are becoming more demanding in terms of production and services associated to its acquisition. Knowledge of customer’s needs is rearranged, not only to search an unique product offer which brings added value to customer, but it is used to make decisions to change the business model of the enterprise. Creating value for customers is a priority objective – determines the survival and growth of the enterprise in the market. Consequently, to meet market requ irements, there is a need of efficiently management stream of customer value, including perceiving and understanding the flow value to the purpose of its me asurement [K. Lisiecka, W. Czakon 2002, pp. 385-386]. Presentation of the different theories was depicted in the work of K. Rogoziński [2012]. The concept of value for customer and related concepts are further explained in the studies: J. Beliczyński 2011, pp. 56-63; R. Seweryn 2012, pp. 19-26. 9

10


121

Fig. 9.2. Customer’s place in the value chain system Source: own research.

Knowledge of customers’ needs allows customers segmentation in order to conduct constant-depth analysis. Simultaneously, knowledge about tendencies helps prevent situations in which the tendency of buying can form on the level of product price corresponding to the level of the product cost, thus depriving the enterprise of profit margin. Traditional market analysis focusing on current priorities, to a lesser extent deals with the anticipation of changes. While the new approach in the analysis, as a result of selecting and dividing customers into groups, attempts to foreseeing needs and priorities. Simultaneously, the enterprise is trying to influence on cu stomers’ needs, with desire to maximize the value of the enterprise. An additional benefit for the enterprise is often achieved as a result of so-called capture value. Captured value more often comes from the sale of additional services [J. Rokita 2005, p. 188].

9.4. The scope of researches and the characteristics of entities The general objective of these empirical researches, conducted in enterprises operating in Poland, was to diagnose the extent of carried out changes in value chain structure which were obtained under the influence of customer feedback11. Detailed research tasks were related to: assessment of parameters of the product offer in terms of customers, direction and scope of changes in internal structure of value chain by the surveyed enterprises under the influence of customer feed Research was conducted via using an inquiry questionnaire addressed to the owners and mana gement of senior grade among 75 manufacturing companies. They were carried out in the period May-December 2013 year. 11


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back, frequency and method of using results of carried out analysis of customers’ preferences and needs in the surveyed enterprises, and to identify processes whe re the client is actively involved in creating value added. Tab. 9.1 shows the characteristics of research sample according to various criteria of their division. Tab. 9.1. The structure of the surveyed companies according to various criteria The criterion Sum of Division groups of companies for classify- indica ing enterpri- tions ses 1. Experience Under 10 years 11-20 years 21-30 years Over 30 years in a sector Number of 75 9 30 11 25 indications 14,7 Share % 100% 12 40 33,3 2. Organizational and legal form Number of indications Share % 3. Localization (voivodships) Number of indications Share %

SA

75

34

Limited liability company 28

100%

45,3

37,3

Civil partnership

Self-employment

5

5

Limited partner ship 3

6,7

6,7

4

Małopol-skie

Śląskie

Mazowie-ckie

Wielkopol-skie

Pomorskie

Podkar packie

75

32

10

13

8

5

7

100%

42,7

13,3

17,3

10,7

6,7

9,3

4. Activity sector

Number of indications Share % 5. Number of employees Number of indications Share %

575

413

36

100%

517,3

68

58

313,3 310,7

57

57

7

69

78

39,3

39,3

39,3

312

310,7

10-49

50-249

250-500

501-1000

pow.1000

75

18

20

10

13

14

100%

24

26,7

13,3

17,3

18,7

6.Annual revenue Number of indications Share %

110

Under 1 mln PLN

1 – 50 mln PLN

50-200 mln PLN

200-500 mln PLN

500-1mld PLN

Over 1 mld PLN

75

12

23

17

7

8

8

100%

16

30,7

22,7

9,3

10,7

10,7

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7. Type of production Number of indications Share % 8. Sales market Number of indications Share %

individual

serial

mass

92

24

25

43

100%

26,1

27,2

46,7

regional

national

international

global

110

4

61

30

15

100%

3,6

55,5

27,3

13,6

Source: own research.

9.5. Parameters of the product offer the highest rated by customers Surveyed respondents (enterprise owners and management staff) of proposed several parameters of the product offer made a choice of those who are the most important in satisfying customers’ needs. For this purpose, scale from 1 to 9 was used; giving to the parameter 1 indicated a minor importance (appreciation) of this parameter offer by the customer, and 9 – was considered as the key parame ter (the most appreciated by the customer). Fig. 9.3 illustrates the importance of individual parameters of the product offer from customers’ point of view. Customisation offer Additional services

3,88 3,23

Comprehensive offer Accessibility of information Availability of a product Flexible operations

5,31 3,92 5,24 4,53

The purchase price /level of purchase Quality of product/service Service time (deadline)

6,96 7,51 6,43

0,00 1,00 2,00 3,00 4,00 5,00 6,00 7,00 8,00 Fig. 9.3. Parameters of the product offer the highest rated by customers Source: own research.

On the basis of obtained results, it can be seen that customers of surveyed enterprises consider most valuable the following parameters offer: ▪ quality of offered products/services (7,51 on a scale to 9), ▪ the purchase price/level of purchase (6,96), ▪ service time (deadline) (6,43), ▪ comprehensive offer (5,31), ▪ availability of a product (5,24).


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Whereas, in 75 surveyed enterprises much lesser importance from customers’ point of view have parameters such as: additional services (3,23), customisation offer (3,88) or accessibility of information (3,92). Which does not mean, that for all customers they do not have a high rank in the choice of an offer. It will depend on individual customers’ preferences and the type of chosen product.

9.6. Customer’s role in the improvement of internal structure of the value chain Executives of surveyed enterprises were also asked about types of fundamen tal processes, which to the greatest extent in recent years have been enhanced under the influence of customer feedback (fig. 9.4). non-improved processes

Customer service Sale and marketing Production (completing) of product Services supporting product ( service, repair,… Supply Distribution Packaging Production of components Storage Additional services (consultancy, training,… Recycling R+D

0%

improved processes

23

77 38 40 43 45 53 58 66 68 70

62 60 57 55 47 42 34 32 30 89

11

53 20%

47 40%

60%

80%

100%

Fig. 9.4. Processes to the greatest extent excellent under the influence of improved customer reviews Source: own research.

The results of research obtained from different enterprises indicate that the greatest range of improvements under the influence of customer feedback has been introduced in the processes: customer service (77%), sales and marketing (62%) and manufacturing (completing) of final products (60%). Customers’ opi nions were also taken into account in a significant way to improve processes: the provision of services supporting product (57%), supplies (55%) or R & D and distribution (47%). In contrast, the smallest range of improvements has been introduced in the following processes: production of components (34%), storage (32%), additional services (consultancy, training) – 30% and recycling (11%). Executives also expressed their view within possibilities of customers’ partici pation in the process of creating a new product. Results are presented in fig. 9.5.

125


customer takes part in creating a new product 44% 56%

customer does not take part in creating a new product

Fig. 9.5. Customer’s participation in creating a new product Source: own research.

As it turns out, among 56% of surveyed enterprises the customer has influence on the development of a new product (most often concerns elements such as: pro ject, design, material, colour scheme, access to information, range of additional services, conditions of delivery, service time), which might translate into faster acceptance of proposed offer by the enterprise at the time of product’s purcha se. Customer’s participation in selected processes of manufacturing enterprises allows to respond more quickly to his needs, and also proposing directions for improvement of manufactured products.

9.7. Customers’ opinions survey – frequency of research and way of using obtained results In the majority of surveyed enterprises (85%) are conducted studies among customers’ opinions (fig. 9.6), which concerns the assessment of offered pro ducts, range of service and way of functioning enterprise in the market. Only 15% of respondents said that the enterprise did not conduct this kind of research.

15%

85%

enterprise does not conduct research

enterprise conduct research among customers

Fig. 9.6. Conducting studies in the range of customers’ satisfaction Source: own research.

Among enterprises conducting studies in order to gain customers’ opinions about offered products it can be seen that the most commonly is used direct co


126

nversation (59%), subsequently, there is preferred questionnaire (28%), analysis of complaints (23%), and survey – 6% (fig. 9.7).

23%

28% 6%

59%

questionnaire

survey

direct conversations

analysis of complaints

Fig. 9.7. Methods used to obtain customers’ opinions Source: own research.

However, fig. 9.8 illustrates that these studies are conducted by enterprises once a year (42%), while 30% carry out them with each purchase by the cus tomer, and 28% do so twice a year. Executives of surveyed enterprises also indicated purposes for which results of carried out studies among customers are used (fig. 9.9). It turns out, that more often they are useful in understanding needs and expec tations of customers (69%), in determining the assessment level of satisfaction from offered products/services (64%), and the level of service (48%). Subse quently, results from customers’ diagnosis are used by enterprises to measure sat isfaction (45%) and to identify weaknesses of offered products/services (34%). 50%

42%

40% 28%

30%

twice a year

with each purchase by the customer

30% 20% 10% 0% once a year

Fig. 9.8. Frequency of conducted studies regarding to the level of customers’ satisfaction Source: own research.

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Assessment of customer’s prices response to competitive

28% 22%

Identification of innovations satisfying the customer Identification of weaknesses services of products and

34% 48%

Assessment of the satisfaction level of service Assessment products/services ofthe satisfaction level of

64% 45%

Measurement of customer’s satisfaction Customer understanding expectations in terms of his needs and

69% 11%

Customers segmentation criteria according to different

0%

20%

40%

60%

80%

Fig. 9.9. The way of using results of customers’ diagnosis in the enterprises Source: own research.

Approximately 28% of respondents use results to comparative assessment with the competitive offer, and 22% to identify introduced innovations which satisfy customer. Only 11% of enterprises use results to conduct customers seg mentation according to different criteria

9.8. Benefits arising from building relations with customers Executives of surveyed enterprises expressed their opinion on gaining benefits arising from building and keeping relations with customers (fig. 9.10). Above all, long-term relations with customers translate into decision-making in the area of improving the quality of offered products/services (60%), incre asing flexibility to respond to customers’ needs (56%), and customization offer (53%). Nearly 43% of enterprises thanks to these relations manage to reduce the level of complaints, and in the case of 37% of respondents it allows to raise stan dards of processes and products realization. Furthermore, in the case of 36% of surveyed enterprises it is noted another ad vantage due to keeping relations with customers, namely increasing the compe tency of enterprise, in 35% – there were shortened the waiting time for customer, and in 33% – there were improved timeliness of product delivery. In a small extent benefits such as are noticeable: fall-off in transaction costs (7%) and increase the level of computerization (8%).

9.9. Conclusion Identification of value for the customer is an important process that allows to configure an efficient value chain and is linked to the acquisition of a certain level of the value added by each of participants in the value-system.


128

7% 8%

Increasing the Fall-off level in oftransaction computerization costs

20%

Improving the level of communication

20%25%

Access Shortening Increasing Improving to Search information the timeliness waiting competency sources about oftime of product cost unmet for of enterprise reduction customer delivery needs

36%

33% 35%

37%

Raising standards of processes and products…

43%

Reducing the amount of complaints

53%

Customization offer

56% 60%

Increasing flexibility to respond to customers’… Improving the quality of product/service

0%

10%

20%

30%

40%

50%

60%

Fig. 9.10. Benefits arising from building and keeping relations with customers Source: own research.

Presentation of results of conducted research allows to understand why it is necessary to analyze and study opinions and preferences of customers, namely: ▪ it is a way to search sources of efficiency and inefficiency in processes of creating the enterprise value chain, and the level of implementation of each pro cess has a significant impact on the value of product offer addressed to customers, ▪ determining directions of effectively introduced changes in the enterprise value chain structure, requires indication of processes that do not meet customers’ expectations and preferences, ▪ it is a way to build an unique relation and bundle of values, which are adju sted to enterprise’s competencies, that is difficult to copy by competitors ▪ seeking opportunities for creating value added with customers through their active participation in improving basic processes, influences on effective forming of the enterprise value chain.

9.10. References Beliczyński J., Analiza systemu zarządzania wartością dla klienta, [in:] Przegląd problemów doskonalenia systemów zarządzania przedsiębiorstwem, A. Sta bryła (ed.), Wydawnictwo MFiles.pl, Kraków 2011 Blaik P., Logistyka. Koncepcja zintegrowanego zarządzania przedsiębiorstwem, PWE, Warszawa 2001 Drucker P., Skuteczne zarządzanie. Zadania ekonomiczne a decyzje związane z


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ryzykiem, PWN, Warszawa 1979 Dytwald J., Współczesne koncepcje zarządzania korporacjami, WSPiZ, Warsza wa 1997 Jaki A., Mechanizmy procesu zarządzania wartością przedsiębiorstwa, Wydaw nictwo UEK w Krakowie, Kraków 2012 Kaplan R.S., Norton D.P., Strategiczna karta wyników. Jak przełożyć strategie na działanie, Wydawnictwo Naukowe PWN, Warszawa 2002 Kotler Ph., Marketing. Analiza, planowanie, wdrażanie i kontrola, Gebethner i S-ka, Warszawa 1994 Kotler Ph., Marketing, Dom Wydawniczy Rebis, Poznań 2005 Koźmiński A.K., Zarządzanie w warunkach niepewności, Wydawnictwo Nauko we PWN, Warszawa 2004 Lisiecka K., Czakon W., Aspekt ekonomiczny integrowania łańcucha wartości (na przykładzie sektora ciepła systemowego), „Prace Naukowe AE we Wro cławiu” 2002, No. 928 Matwiejczuk R., Zarządzanie marketingowo-logistyczne. Wartość i efektywność, C.H. Beck, Warszawa 2006 Marketing – Theory and Practice, M. Baker (ed.), MacMillan Press Ltd., London 1985 Porter M.E., Competitive Advantage. Creating and Sustaining Superior Perfor mance, The Free Press, New York 1985 Rokita J., Zarządzanie strategiczne, tworzenie przewagi konkurencyjnej, PWE, Warszawa 2005 Rutkowski K., Zintegrowany łańcuch dostaw. Doświadczenia globalne i polskie, Szkoła Główna Handlowa, Warszawa 2000 Slywotzky A., Morrison D.J., Andelman B., Strefa zysku, Strategiczne modele działalności, PWE, Warszawa 2000 Stabryła A., Zarządzanie strategiczne w teorii i praktyce firmy, Wydawnictwo Naukowe PWN, Warszawa 2007 Szymura-Tyc M., Zarządzanie przez wartość dla klienta, [in:] Marketing. Kon cepcje, badania, zarządzanie, L. Żabiński, K. Śliwińska (ed.), PWE, Warsza wa 2002 Szymura-Tyc M., Wartość dla klienta w teorii wyboru, zachowań konsumentów i Marketingu, [in:] Wartość w naukach ekonomicznych, H. Zadora (ed.), Wy dawnictwo Politechniki Śląskiej, Gliwice 2004 Webb J., Glie Ch., Reversing the Value Chain, „Journal of Business Strategy”, 2001, No. 3-4

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List of tables

Tab. 1.1. Differences in traditional and modern public management ............... 12 Tab. 3.1. Theoretical concepts taken into account in the model ....................... 36 Tab. 4.1. Theoretical approaches to risk ........................................................... 45 Tab. 6.1. A pattern for determining the economic effects of proposed solutions in the coordination account........................................................................... 80 Tab. 6.2. Example of selection criteria for project variants .............................. 84 Tab. 7.1. Selected platforms with e-maritime commerce solutions for B2B ... 96 Tab. 7.2. The assortment of goods and services in maritime e-commerce for B2C ............................................................................................................... 98 Tab. 8.1. The scope of research conducted ..................................................... 108 Tab. 9.1. The structure of the surveyed companies according to various criteria .....................................................................................................122

132


List of figures

Fig. 1.1. Stages in the policy-making process .................................................. 13 Fig. 2.1. Perspectives of projects management................................................. 25 Fig. 2.2. Relation between projects management and roles of projects manager ........................................................................................................ 28 Fig. 3.1. Descriptive model of a process of MNC strategy in the context of emerging markets.......................................................................................... 38 Fig. 4.1. Risk in negotiation – a conceptual framework .................................. 47 Fig. 4.2. Contract time line with negotiation and renegotiation ...................... 56 Fig. 8.1. Structure of surveyed companies...................................................... 107 Fig. 8.2. Starting point of designing process in small enterprises .................. 109 Fig. 8.3. Starting point of designing process in medium sized enterprises..... 109 Fig. 8.4. Starting point of designing process in large enterprises ................... 109 Fig. 8.5. Approach to design process in small companies ...............................110 Fig. 8.6. Approach to design process in medium-sized companies .................110 Fig. 8.7. Approach to design process in large companies ................................111 Fig. 8.8. Approach to development of optimal design of organization in small companies ....................................................................................................111 Fig. 8.9. Approach to development of optimal design of organization in medium-sized companies.............................................................................112 Fig. 8.10. Approach to development of optimal design of organization in large companies ....................................................................................................112 Fig. 8.11. Strategy – organization design relationship in small companies .....113 Fig. 8.12. Strategy – organization design relationship in medium-sized companies ....................................................................................................113 Fig. 8.13. Strategy – design of organization relationship in large companies .113 Fig. 9.1. The basic internal processes in the overall value chain model..........119 Fig. 9.2. Customer’s place in the value chain system ..................................... 121 Fig. 9.3. Parameters of the product offer the highest rated by customers....... 123 Fig. 9.4. Processes to the greatest extent excellent under the influence of improved customer reviews ........................................................................ 124 Fig. 9.5. Customer’s participation in creating a new product ........................ 125 Fig. 9.6. Conducting studies in the range of customers’ satisfaction.............. 125 Fig. 9.7. Methods used to obtain customers’ opinions.................................... 126

134


Fig. 9.8. Frequency of conducted studies regarding to the level of customers’ satisfaction .................................................................................................. 126 Fig. 9.9. The way of using results of customers’ diagnosis in the enterprises 127 Fig. 9.10. Benefits arising from building and keeping relations with customers ................................................................................................... 128

This publication presents the strategies for managing organizations in the information society. In the conditions of rapid changes in economic environment it is necessary to seek new opportunities for the organization’s development and improvement. The proven methods for ensuring sustained growth turn out to be ineffective in the new information society. Therefore it is important to adapt strategies of organizations to changing requirements and conditions. The objective of this book is to present the theoretical and methodological concepts that could contribute to preparing and testing of new strategies for managing of organizations under conditions created by development of new information society. These concepts relate to various fields of activity carried out by companies, service providers, public administration, agencies and other institutions. Publication is composed of 9 chapters which present selected concepts and solutions in the area of strategic management as well as results of empirical research in this field of study. Some of the chapters focus on methodological issues, while the others discuss the empirical aspects of the analysed problem. However, special attention is given to the strategies of manag ing various organisation in context of rapidly developing information society. The discussed concepts can be considered both by management theoreticians and practitioners working in different kinds of organizations, who strive to improve and develop their processes of strategic management.

ISBN 978-83-935104-3-6