ADVANCES IN BUSINESS-RELATED SCIENTIFIC RESEARCH JOURNAL ISSN 1855-931X VOLUME 4 (2013), NUMBER 2 CONTENTS: PEOPLE STRATEGY: UNDERSTANDING VOLUNTARY TURNOVER IN ORGANIZATIONS USING AN ILLUSTRATIVE CASE STUDY ………………………………………………………….. 99 PETRA STROJILOVA, PATRICIA D. RAFFERTY (JEL CLASSIFICATION: J63, J01, J50) CREATING BEST PRACTICES IN SAUDI ARABIA ……………………………………………… 113 MESHARI M. S. ALWAZAE, HARALD KJELLIN (JEL CLASSIFICATION: D83, D80, L25) THE EFFECT OF SUBSIDIES ON CONSUMER’S SURPLUS …………………………………… 127 CAROLINE BUTS, MARC JEGERS (JEL CLASSIFICATION: D12, D00, D04) GENDER BIAS IN PROMOTION: IS IT REAL? ………………………………………………….. 139 PAULO LOPES HENRIQUES, CARLA CURADO (JEL CLASSIFICATION: M51, J16, M50) LINKING TWO DIMENSIONS OF ORGANIZATIONAL CREATIVITY TO FIRM PERFORMANCE: THE MEDIATING ROLE OF CORPORATE ENTREPRENEURSHIP AND THE MODERATING ROLE OF ENVIRONMENT ………………………………………………………………………….… 153 KATARZYNA BRATNICKA, MARIUSZ BRATNICKI (JEL CLASSIFICATION: L26, L25, L20) EXPLORING THE DIGITAL DIVIDE ISSUES AFFECTING HOTEL FRONTLINERS …….… 165 AZILAH KASIM, HISHAM DZAKIRIA, CEZAR SCARLAT (JEL CLASSIFICATION: L83, M31, M10) READING THROUGH THE LANGUAGE OF THE ECONOMIST: AN APPROACH TO ANALYSE INTERSEMIOTIC COMPLEMENTARITY IN MULTIMODAL DISCOURSE ………………..… 177 LUISELLA LEONZINI (JEL CLASSIFICATION: M10, Z00, M00) EDITOR: BOSTJAN ANTONCIC ABSRJ - mednarodna znanstvena revija ADVANCES IN BUSINESS RELATED SCIENTIFIC RESEARCH JOURNAL ISSN 1855-931X Copyrights: GEA College – Faculty of Entrepreneurship Editor: Bostjan Antoncic Issued and published by: GEA College – Faculty of Entrepreneurship, Kidricevo nabrezje 2, SI 6330 Piran, Slovenia - Volume (Year): 4 (2013) Number: 2 Electronic publication: www.absrc.org Number of issued CDs: 200 SCOPE Advances in Business-Related Scientific Research Journal (ABSRJ) is an international journal, which publishes scientific papers on diverse topics on business and economics and business-related sciences research. 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Submissions should be sent to: absrj@absrc.org EDITOR Bostjan Antoncic, University of Ljubljana, Ljubljana, Slovenia SCIENTIFIC EDITORIAL BOARD Suavi Ahipasaoglu, Okan University, Istanbul, Turkey Bostjan Antoncic, University of Ljubljana, Ljubljana, Slovenia Heri Bezic, University of Rijeka, Rijeka, Croatia Ionel Bostan, University “Stefan cel Mare” of Suceava, Suceava, Romania Patrycja Chodnicka, University of Warsaw, Warsaw, Poland Alex F. DeNoble, San Diego State University, San Diego, California, U. S. A. Giorgio Dominese, LUISS University Rome, Rome, University of Udine, Udine, University of Rome Tor Vergata, Rome, Italy Doris Gomezelj Omerzel, University of Primorska, Koper, Slovenia Dietmar Grichnik, University of St. Gallen, St. Gallen, Switzerland Katherine Gundolf, GSCM - Montpellier Business School, Montpellier, France Robert D. Hisrich, Thunderbird School of Global Management, Phoenix, Arizona, U. S. A. Renata Karkowska, University of Warsaw, Warsaw, Poland Claudine Kearney, University College Dublin, Dublin, Ireland Ekaterina Kostina, Novosibirsk State Pedagogical University, Novosibirsk, Russia Abey Kuruvilla, University of Wisconsin Parkside, Kenosha, Wisconsin, U. S. A. Leonard H. Lynn, Case Western Reserve University, Cleveland, Ohio, U. S. A. Doug Lyon, Fort Lewis College, Durango, Colorado, U. S. A. Stephen O. Migiro, Graduate School of Business Leadership, Midrand, South Africa Rickie Moore, EM Lyon, Lyon, France Malgorzata Olszak, University of Warsaw, Warsaw, Poland Figen Ozulke, Okan University, Istanbul, Turkey N. Panchanatham, Annamalai University, Tamil Nadu, India Mohammed Abdul Raffey, Dr. Babasaheb Ambedkar Marathwada University, Aurangabad, India Cezar Scarlat, University Politehnica of Bucharest, Bucharest, Romania Seval Selіmoglu, Anadolu University, Eskisehir, Turkey Gangaram Singh, San Diego State University, San Diego, California, U. S. A. 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Authors, who submit to the journal their works for publication as original articles: (1) declare that the submitted works represent contributions of their authors and that the submitted works have not been copied or plagiarized in whole or in part from other works; (2) acknowledge that they have disclosed all conflicts of interest with their work (any actual or potential conflicts of interest or partial benefits associated with the work). ABSRJ IS LISTED/INDEXED IN DOAJ Directory of Open Access Journals EconBiz - Virtuelle Fachbibliothek Wirtschaftswissenschaften Elektronische Zeitschriftenbibliothek EZB (Electronic Journals Library) Journal Finder Journalseeker Researchbib New Jour - Electronic Journals & Newsletters Search-Document WorldCat Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 ISSN 1855-931X PEOPLE STRATEGY: UNDERSTANDING VOLUNTARY TURNOVER IN ORGANIZATIONS USING AN ILLUSTRATIVE CASE STUDY Petra Strojilova Erivan K. Haub School of Business, Saint Joseph’s University, 5600 City Avenue, Philadelphia, PA 19131 USA Patricia D. Rafferty Erivan K. Haub School of Business, Saint Joseph’s University, 5600 City Avenue, Philadelphia, PA 19131 USA patricia.rafferty@sju.edu Abstract Voluntary employee turnover has meaning for an organization. What that meaning is depends on the distinctive and complex milieu, culture, and context of a particular enterprise. This understanding is crucial if those responsible for human capital management are to evaluate employee turnover and make actionable recommendations that are positively aligned with organizational objectives. If organizational understanding about its voluntary employee turnover is unclear, misplaced, or absent, then crucial meaning is lost and valuable insight is wasted. In order to fully explore this theme, this article explores the topic of voluntary employee turnover using a systems thinking framework as a theoretical lens. First, a systems thinking perspective will be highlighted by integrating the theory with the subject of employee turnover. Then, an illustrative case study will be explicated, which examined the voluntary employee turnover within a unit of a global organization with offices in over 90 countries. The systems thinking lens presents interesting implications for those responsible for managing human capital, as this perspective is not often applied to the subject of voluntary employee turnover within an organization. JEL Classification: J63, J01, J50 INTRODUCTION Voluntary employee turnover has meaning for an organization. What that meaning is depends on the distinctive and complex milieu, culture, and context of a particular ABSRJ 4 (2): 99 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 enterprise. This understanding is crucial if those responsible for human capital management are to evaluate employee turnover and make actionable recommendations that are positively aligned with organizational objectives. If organizational understanding about its voluntary employee turnover is unclear, misplaced, or absent, then crucial meaning is lost and valuable insight is wasted. Today, this reality has never been more critical, as organizations endeavor to leverage human capital and make the most of this crucial asset in obtaining sustained competitive advantage (Premalatha, 2011) Yet, few companies strategically align efforts on retaining key talent and are often faced with turnover that offers little meaning for the strategic guidance of the enterprise. Although the topic of employee turnover has been researched and discussed in both practitioner and academic settings, it remains one of the most important issues for management today. It has particular significance to those responsible for mitigating increased operational expenses, containing productivity losses, controlling recruitment costs, and limiting the damage caused by the loss of key talent, all factors resultant of unexamined voluntary employee turnover (Kazi & Zadeh, 2011; Milbourn, 2012). “In an age when the job market moves toward and away from employers and employees’ benefit, the need for analyzing voluntary turnover and retaining talent becomes imperative for most…organizations” (Premalatha, 2011, p.56). Grounded in this context, the purpose of this article is to explore the topic of voluntary employee turnover using a systems thinking framework as a theoretical lens. To accomplish this aim, this article will first highlight the systems thinking perspective by integrating the theory with the subject of employee turnover. Then, an illustrative case study that was conducted in the spring of 2012 will be explicated, which examined the voluntary employee turnover within a unit of a global commercial and personal insurance company, with offices in over 90 countries. This explorative approach is a useful and appropriate research technique when describing a particular phenomenon, especially when the goal is to help in the interpretation of other data and the synthesis of research from different sources (Dörrenbächer & Gammelgaard, 2011; Mitra, Abubaker, & Sagagi, 2011). Senge’s (1990a, 1990b) theory of systems thinking was applied to this topic as an analytical lens in order to provide a perspective that is not often applied to the subject of voluntary employee turnover within an organization. VOLUNTARY TURNOVER AND THE APPLICATION OF SYSTEMS THINKING Systems thinking is “a discipline for seeing wholes” (Senge, 1990a, p.117) that allows organizations to understand interrelationships between all aspects of an enterprise, even when a linkage is not apparent. The essence of a systems thinking perspective lies in the notion of conscious recognition of interconnections within an organization, recognizing that key interrelationships influence behaviors and outcomes over time (Senge 1990b; Senge & Fulmer, 1993). This perspective allows individuals to see that everything is connected and problems exist in context and cannot be effectively addressed unless the issue is understood within the existing system. This has significant implications for employee turnover, which is defined as “the rotation of workers around the labor market; between firms, jobs and occupations; and between the states of employment and unemployment” (Kazi & Zadeh, 2011, p. 985). Employee turnover is typically characterized as voluntary or involuntary. Involuntary turnover is considered beyond the control of management or the individual employee, such as when an employee retires, dies, has a long-term illness, must relocate, or is terminated by the ABSRJ 4 (2): 100 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 employer. On the other hand, voluntary turnover occurs when an employee personally decides to terminate current employment with an organization. This decision may often be mitigated through the actions of an organizations management team (Kazi & Zadeh, 2011). Voluntary turnover can then be delineated into functional or dysfunctional dimensions. “Dysfunctional turnover is often detrimental to an enterprise, since it frequently includes the departure of an organization’s high performers or the departure of minority groups. The exit of either of these key groups causes the erosion of crucial organizational knowledge and diversity, which eventually leads to high replacement costs (Wilson, 2012). In contrast, functional turnover does not harm an organization and is part of the natural course of business if it includes the departure of employees that provide inconsequential or no positive benefit to the enterprise. The most common type of employee turnover is voluntary (Wilson, 2012) and many organizations are satisfied with finding quick and temporary solutions to these occurrences, with many viewing this phenomenon as something to be simply tolerated (Senge, 1990b). This type of thinking leads to inefficiency, as the root of the problem is not identified and the issue is likely to reoccur over time. A systems thinking perspective can create meaning around turnover, seeking to understand the type of voluntary turnover (functional or dysfunction) and mitigating any deficiencies. This provides managers and leaders with understanding to the relationships, interconnections, and causes of dysfunctional turnover within an organization and to understand “the perception of reality from many different points instead of one” (Skarzauskiene, 2010, p. 50). This has particular significance for professionals whose responsibility lies in the area of effective human capital management and strategic human resources, since systems thinking is associated with higher organizational performance (Senge, 1990a, 1990b). This is due to the ability of a systems thinking perspective to open the door for new meaning regarding the employee turnover, which allows an organization to continuously create new knowledge to sustain its competitive advantage (Paajanen, Kantola, Karwowski, & Vanharanta, 2010). This is rooted in the understanding that knowledge starts at the individual level and is then carried up through the company, through departments, divisions, and finally the whole organization. This is where real value creation exists (Paajanen et al, 2010; Ulrich, 1997). Yet, the execution of this paradigm in practical terms is often elusive for organizations that wish to further the value created by its human capital. Skarzauskiene (2010) addresses this shortcoming by identifying three important tenets that are important for the realization of systems thinking within an organization. First, there must be an awareness of systems and the conscious perception and philosophy of systems at all levels of the enterprise. Within this context, those focused on human capital management must first understand the concept of systems thinking and fully comprehend the organizational environment, as well as communicate this concept to employees. Secondly, line managers and organizational leaders must adopt an attitude toward the organization as an open socio-cultural system that is capable of self-organization. “Socio-cultural systems are characterized by dynamic complexity that arises from the interactions of agents over time” (Skarzauskiene, 2010, p.51). Because organizations are complex, leaders must view them as ever-changing systems, which ultimately will change the leader’s role within the organization. Leaders must not only be open to this change, but must serve as a change agent (Ulrich, 1997). This results in organizational leaders taking on the new role of ‘constructor’ of the organization. This is a necessary element if a systems thinking perspective is to be realized ABSRJ 4 (2): 101 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 within an enterprise. “The best way to understand the system is to construct it, to get a handle on emergent properties, to understand the processes that produce them… and appreciating the parameters affecting the system’s existence” (Skarzauskiene, 2010, p. 51). In other words, managers and organizational leaders will only have control over what they themselves create. If they choose to take only partial responsibility and control over their organization, then they cannot expect to obtain the results they desire. Grounded in this perspective, voluntary employee turnover has been shown to include four distinctive determinants, including job satisfaction, organizational commitment, job involvement, and individual performance (Premalatha, 2011; Westover, 2012). Job satisfaction is often characterized by intrinsic and extrinsic factors, as follows: Intrinsic factors, such as achievement, recognition, the work itself, responsibility, advancement and growth are related to job satisfaction and attributed to employees when they were satisfied with the job. When employees were dissatisfied, extrinsic factors such as company policy and administration, supervision, interpersonal relations and working conditions were quoted as reasons. (Premalatha 2011, p.57) However, an employee’s job satisfaction level and decision to terminate association with an employer are highly correlated to the state of the economy. This has particular significance today, where many organizations have downsized and employees have reported being increasingly overwhelmed with work, which ultimately causes further dissatisfaction. However, a consistent increase in turnover over time typically signifies trouble within a company. If management ignores these issues and simply re-hires, the turnover will likely continue over time (Yurtseven & Halici, 2012). Organizational commitment is another key determinant in an employee’s decision to terminate association with an employer. Commitment is an essential part of life, whether it is in work or personal relationships. However, employee commitment is generally defined in three ways. First, employee commitment can be characterized as one of compliance, which is a behavior designed to gain rewards. Secondly, employee commitment may be defined as a desire to remain with the organization due to its appealing values and goals. Finally, employee commitment can take the form of internalization, which is behavior driven by internal goals and values of the employee and their consistency with that of the organization. Using this framework, Premalatha (2011) found: 1. Identification and internalization commitment were negatively related to turnover intention and active turnover. 2. Organizations with strong career and reward systems had employees with higher levels compliance-based commitment 3. There was no relationship between organizational commitment and voluntary turnover among employees who had tenure less than one year. Employees tenured more than one year had an inverse relationship between commitment and turnover. This is an important relationship to remember as an organization must remain supportive and committed to their employees throughout their employment. An effective organization will constantly motivate their employees and enhance their goals and values to strengthen the organizational culture. Job involvement, another key determinant in an employee’s decision to terminate association with an employer, is closely aligned with organizational commitment. Job involvement is the ABSRJ 4 (2): 102 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 t t extent to which an employee identifies psychologically with his or her job; whereas, organizational commitment involves the employee’s identification with the values and goals of the organization and desire to remain a part of that enterprise (Premalatha, 2011). The combination of both high organizational commitment and high job involvement in an employee designates that individual as an institutional s ar, defined as an employee who is least likely to leave the organization (Blau & Boal, 1987). On the other hand, corpora e citizens are employees with low job involvement and high organizational commitment, and are less likely to leave an organization than those with high job involvement and low organizational commitment due to their strong organizational identification (Blau & Boal, 1987; Premalatha, 2011). The relationship between turnover and employee performance is considered another key determinant of voluntary turnover; however, there is conflicting research concerning this dimension. Some studies indicate that employees with lower performance levels were more likely to leave their job than higher performers. On the other hand, other studies demonstrate that turnover was related to job performance, even for higher performing employees (Nyberg, 2010; Premalatha, 2011; Yurtseven & Halici, 2012). Nonetheless, “though the factors identified such as job satisfaction, organizational commitment, job involvement and performance, are stronger in accounting for voluntary turnover, it depends on individual’s intentions to quit, which acts as an intermediate linkage between the variables and actual turnover” (Premalatha, 2011, p. 63). In the end, it is exceedingly difficult to predict an individual’s intention to quit, as it is dependent on particular personality traits, an individual’s intentions, and alternate employment opportunities. UNDERSTANDING EMPLOYEE RETENTION WITHIN A SYSTEMS PERSPECTIVE Sound organizational objectives should include strategies to decrease undesirable employee turnover, which in turn reduces training costs, recruitment expenses, and the loss of talent and organizational knowledge for the enterprise (Ananthan & Rao, 2011). These strategies have become more important than ever, especially since the effects of the global financial crisis in 2008 continue to linger in virtually every corner of the world. The truth is that companies can no longer afford to ignore dysfunctional turnover (Ortlieb & Sieben, 2012). Loss of high performers within an organization “leads not only to costs due to lost productivity, recruiting and training, but also to losses of institutional knowledge and leadership, both current and potential” (Nyberg, 2010, p.440). The retention of key performers should be part of an integrative and comprehensive system that is strategically aligned with the overall organization’s mission and objectives. Yet, how does an organization identify high performing employees and initiate a focused plan to retain these key individuals? The first step is to identify what potential means to the company and align that meaning with the corporate strategy. This meaning is going to be unique to each organization and will ultimately drive sustainability and competitive advantage for the firm. To accomplish this end, the management team and human resources must carefully review its objectives, define its goals, and set clear expectation. Within a systems perspective, this also includes deriving meaning from an individual’s future performance, as well as the interactions of that individual with other employees, departments, units, and beyond. Only then can a company truly evaluate what potential means to that organization. “Best practice organizations start with a strategic focus but periodically re-examine their strategic priorities and refresh their pool of candidates” (Fernández-Aráoz, Groysberg, & Nohria, 2011, p. 80). ABSRJ 4 (2): 103 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 Once meaning is defined, an organization can begin the identification of the organization’s top performers, which can be accomplished by a variety of methods. For example, one approach is to gather recommendations from management, which requires highly specific and targeted training that provides managers with the understanding and skills to accurately cultivate and select their high performers. Another method is to utilize the annual performance appraisal process to target key performers within an organization. However, the preferred manner is that appraisals are supplemented by a subjective view of the candidates in the form of supervisor recommendations and other measurable, highly-specific tools that are specific to the individual job, department, and organization (Fernández-Aráoz et al., 2011; Ortlieb, & Sieben, 2012). During this process, HR and line managers need to work together when selecting top performers and the measurement strategies to help identify them (Cosack, Guthridge, & Lawson, 2010). Similarly, employees that don’t fit the top performer category should not be overlooked nor undervalued during this process. In fact, management is encouraged to look in “less obvious places for more average performers whose skills or social networks may be critical” (p. 136). Once key employees have been properly identified, the next step is to identify valid assessments of measuring potential and future performance. The use of personality tests is not recommended for this measurement due to inadequate predictor accuracy and the instrument’s general low validity. Instead, the use of multiple, diverse, and highly detailed references from others are suggested, as well as in-depth, behavioral interviews (Fernández-Aráoz et al., 2011). Regardless of the strategy utilized to identify, retain, and develop key employees and high performers, organizations must be diligent to ensure that these methods are effective. This takes on particular significance given that 40% of internal job moves made by those identified as high-potentials end in failure and 12% of high potentials are actively searching for new jobs outside their organization (Martin & Schmidt, 2010). However, a study of over 20,000 high-potential employees over a six year period provides some insight into the most common errors companies make with regard to retention strategies of high performers, as well as suggestions on how to correct any deficiency. For example, Martin and Schmidt (2010) point out that when a company assumes that all selected high potentials are also highly engaged, then it has fallen victim to the first mistake. This research on high-potential employees has found: One in four will leave the employer in one year, one in three admits to not putting all his effort into his job, one in five believes their personal aspirations are quite different from what the organization has planned and four out of ten have little confidence in their co-workers and even less confidence in the senior team. (p. 56). These may be very surprising statistic to many organizations, as there is often a certain expectation of dedication and loyalty from top performers. After all, an organization and its management often spend precious time and resources to develop these individuals into shining stars. However, to prevent this lack of full-commitment from top performers is to drive their engagement by offering them: (1) autonomy and self-direction, (2) opportunity to develop self-mastery, (3) diverse professional development and leadership opportunities, and (4) opportunities to take on new roles within the organization (Martin & Schmidt, 2010; Rice, 2011). ABSRJ 4 (2): 104 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 Similarly, it is often problematic for organizations to follow the commonplace routine of delegating the development of top talent to mid-level managers. For example, organizations often give line managers full control of ensuring employee development because it is assumed that these managers are the most familiar with the strengths and weaknesses of top talent. However, Martin and Schmidt (2010) caution against this approach because managers of business units tend to select top talent candidates solely on recent performance and often provide very narrow development opportunities that are limited by the business units’ current scope and needs. This prevents high potential employees from being fully developed and tested in a wide variety of business situations, especially those that pose significant challenges and risk. Together with offering robust and diverse developmental opportunities, the retention of high performers is often maximized through a variety of financial incentives and non-monetary inducements. The value and dimensions of these incentives should be unique to the particular organization, thus a one-size-fits-all scheme is to be avoided. Within a systems thinking framework, these inducements can be understood as a key determinant that influence behaviors and outcomes over time. Although there may be disapproval by some to reward certain employees better than others, these incentives should be aligned with the individual’s contributions and tied to the overall business strategy. This is accomplished by understanding how the high performing employee is rewarded in terms of individual contribution, as well as how that employee’s performance affects other individuals, departments, and cross-functional operations of the enterprise. Finally, the success of this strategy is dependent on the ability of senior management to effectively communicate this scheme and fully share it with high potentials (Martin & Schmidt, 2010; Rice, 2011; Senge & Fulmer, 1993; Stone, 2010). INTERNAL AND EXTERNAL ORGANIZATIONAL CONDITIONS Employees will likely consider both internal and external conditions when contemplating the decision to voluntarily leave a company’s employment. Within a thinking systems perspective, these internal and external conditions are viewed in a holistic and integrative mode, especially in the manner in which these conditions impact the intrapersonal, interpersonal, and intergroup interactions of the organization and the respective employee (Laszlo & Krippner, 1998). These internal and external conditions are often referred to as desirability of movement, as they pertain to the factors that affect an employee’s interest in leaving and organization and the ease of movement or alternate opportunities. These two dimensions create a complex web of interacting factors that work together with other relationships and interconnections that affect voluntary employee turnover (Laszlo & Krippner, 1998; Nyberg, 2010). Within this context, high performers who are awarded for their accomplishments and understand the connection between their work and their rewards will likely aspire to stay with an organization that values their efforts and achievements. Conversely, top performers who are desirable to external companies and do not receive this recognition will be more likely to voluntarily leave. This notion is aligned with the theory that higher performers will often have greater access to external opportunities (Nyberg, 2010). Similarly, Nyberg (2010) found other key factors that affect a top performing employee’s decision to leave an organization, as follows: ABSRJ 4 (2): 105 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 • The higher the pay growth, the lower the desire to voluntarily leave, thus validating the use of recognition and rewards for high potentials. • High performers require greater rewards then lower performers to feel the same satisfaction, which further expands the importance of contingent rewards. • Promotions often increase the profile of top performing employees to external organizations; however, promotions may decrease the appeal of movement by increasing organizational attachment. • Voluntary turnover of high performers often increases during periods of relevant high unemployment, since companies often decrease pay growth during these periods. These factors illustrate that strategies to decrease voluntary turnover of higher performers must be tailored with a focus on the enterprise as a system, as well as the particular factors affecting the high performing employee. Analyzing performance levels in relation to the dimensions of the internal and external environment allows one to view the situation holistically and in an integrative manner. This process brings the possibility of new meaning of the rates of voluntary turnover among high performing employees, especially as it relates to pay growth and job progression of top talent. As a result, managers must remain mindful of the many complex and interrelated determinants of turnover (Laszlo & Krippner, 1998; Senge, 1990a) AN ILLUSTRATIVE CASE STUDY In June of 2011, an illustrative case study was conducted in order to explore the topic of voluntary employee turnover utilizing systems thinking as theoretical framework. The study site was a U.S. based business unit of an international organization, where a particular division was experiencing up to a 30% loss of its work force due to voluntary employee turnover. Information collection involved unstructured interviews with current divisional employees and managers, as well as four former employees who had quit. Data on performance ratings of former employees, recruitment costs, exit interview expenses, training costs, associated administration expenditures, and overtime expenses were also obtained from divisional management. The division defined a high performing employee as one who receives a performance rating of “1” or “2” out of a scale of 1 – 5, where “1” designated top performance and “5” indicated inadequate job performance. When actual expenses were not tracked by the organization, estimates were made by divisional management. Using a systems perspective, it was determined that this divisional turnover likely contributed to additional employee turnover company-wide, causing the organization to experience an unprecedented overall turnover rate of 46% by year-end 2011. At the time of this study, the divisional management team was ill-prepared to keep-up with the turnover and was challenged to recruit and hire adequate replacements. As a result, remaining divisional employees within the study site reported low morale and described feelings of unease, especially as they anticipated the next turnover announcement from their fellow colleague. As a result, remaining employees within the division reported feelings of frustration and strain as workload demands increased due to the loss of their skilled colleagues. The divisional management team was aware and understanding of these sentiments, as well as concerned that additional turnover would exacerbate these feelings. Descriptive data analysis revealed that 83% of those who quit were considered high performers, as measured by their annual performance evaluations. Although the management team took steps to replace ABSRJ 4 (2): 106 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 theses employees, 30% of new hires quit within the first three months (three out of 10 workers). Former employees, who all were identified as higher-performers within the division under study, were asked: (1) what caused them to begin looking for new employment, (2) what confirmed their final decision to leave, and (3) what feedback they provided to the company during their exit interviews. Study results revealed that low job satisfaction was the main reason for seeking their new employment. All former employees attributed their decreased level of job satisfaction primarily to lack of job recognition. Because of their high performance ratings, they were given responsibilities for highly complex work; however, they felt they were not appreciated nor properly rewarded for the level of their efforts and commitment. For example, they reported being evaluated by the same standards as their lower performing counterparts, even though they consistently handled work that involved financial risk for the division and required excellent customer service. Interviews with former employees also revealed that lack of leadership, as well as professional opportunities, were key factors in their decision to quit. For example, these high performers reported that the organization did not demonstrate the capacity or the commitment to provide opportunities for advancement, which stymied their ability to “grow within the company.” Combined with the lack of recognition, this factor was a significant catalyst for their decision to leave. Similarly, former employees reported that their direct managers often had very poor communication skills, limited leadership acumen, and exhibited low levels of engagement. As a result, there was limited confidence in senior management and overall low morale of the division. The organization conducted exit interviews with former employees through a telephone conference with a human resource representative, typically lasting approximately 15 minutes. Former employees were also asked to complete a questionnaire, which consisted of closed-ended questions with no room for feedback. Case study investigation regarding these exit interviews revealed that former employees perceived exit interviews as superficial and perfunctory, as the human resource representative managing the exit interview did not ask questions about their personal experiences, nor asked for recommendations. Overall, former employees believed that the information shared during their exit interview would not be used for organizational change and that made them “feel better about their decision to leave.” Case study interviews with current employees revealed similar sentiments and perceptions as those of former employees. Like those who quit, current employees were also considered high performers by the organization. These individuals have been employed at the study site for a minimum of three years and were asked their perceptions and opinions concerning the incidence of voluntary employee turnover within their unit. In the same way, these employees expressed low levels of job satisfaction, primarily due to the intense work demands as a result of the exodus of skilled colleagues from their unit as a result of voluntary turnover. Current employees believed that the organization has put its best efforts into replacement, recruitment, and re-staffing activities, such as weekly updates on recruitment initiatives. However, there has been a dearth of activities designed to retain existing employees and stave off continued unwanted turnover. However, none of the current employees reported plans to look for employment elsewhere. A positive outcome from these circumstances is the development of new professional opportunities within the business unit for remaining high performing employees. These ABSRJ 4 (2): 107 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 individuals were given the opportunity to participate in a two year job rotation with counterparts in another unit in order to expand experience and expertise levels. There was also the creation of another management position within the unit, which was opened to both internal and external candidates. The interviews to staff that position were currently in process during the time of this study. When measuring the true cost of volunteer employee turnover, all associated expenses must be considered, including costs involved in recruiting, interviewing, administrative associated with hiring, training, as well as overtime paid to employees who have to do the work of those who quit. As Kazi and Zadeh (2011) stated, “the result of an increasing job turnover rate increases the cost of the organization, which most of the time becomes a reason for their income statement bottom line number to experience a declining trend” (p. 985). Within a systems perspective, it extends beyond the individual department experiencing the turnover, and affects the ability of an organization to fulfill its organizational objectives overall. “Cost of turnover is usually categorized into four primary categories: (1) separation processing costs, (2) replacement hiring costs, (3) training new hire costs and (4) lost productivity or business costs” (Cost of Turnover, 2005). However, indirect costs are more difficult to measure, such as expenses associated with loss of productivity, loss of organizational expertise, and customer dissatisfaction. Although literature indicates that direct replacement costs can often reach as high as 50%-60% of an employee’s annual salary, overall replacement costs associated with turnover can often range from 90% to 200% of an employee’s annual salary (Wilson, 2012). Human resource professionals play a crucial role in understanding the impact of this kind of turnover. By carefully analyzing turnover data, HR professionals are able to “view the aggregate cost of turnover for the entire organization and, when possible, learn its root causes and suggest possible solutions” (Cost of Turnover, 2005). However, it is crucial that HR effectively communicates this information to senior management. Providing real financial figures help senior management understand the urgency of the circumstance, as well as facilitate the need for a concerted strategy to address the turnover. IMPLICATIONS FOR HUMAN CAPITAL MANAGEMENT This exploration illustrates the need for purposive retention and recruitment strategies that takes into account the implications on the entire system, particularly as it relates to an organization’s most critical employees. In the case of the departure of high performing individuals, it is not sufficient to simply replace employees and hope for the best. Instead, management must take the time to conduct a thorough, enterprise-wide situational analysis to determine what circumstances led to the voluntary turnover, as well as inter-and intra- departmental impact. This process should always begin with the respective department’s re- alignment with the overall organizational strategy, starting with a clear definition of all business goals. Skarzauskiene (2010) clarifies this process by describing managers as constructors within their particular unit, with the success of the department dependent on their leadership. Once organizational goals are outlined, all levels of management must find ways to effectively communicate their strategy and create actionable steps for employees that are both efficient and effective. While the exact process will vary depending on the employee profile and culture of the particular organization, clearly communicating the course of action and expectations to employees helps facilitate the prescribed plan. Together with a ABSRJ 4 (2): 108 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 comprehensive socialization strategy, these steps are essential when helping the employee internalize and understand the organizations’ values and culture (Wilson, 2012). Within a systems thinking perspective, it is beneficial for the organization and respective functional areas to remain flexible and innovative. This allows all employees to take the time for reflection and thoughtful dialogue about the challenges that face them, particularly those in leadership positions (Skarzauskiene, 2010). In the case of dysfunctional voluntary turnover, this may involve providing technical training to line managers to address the crucial issues occurring in their departments. Training can take the form of one-on-one mentoring, targeted leadership development classes, tutorials on effective communication, and professional development in the area of retention of high performers. This aligns with the recommendations of Hrebiniak (2005), who explains that leaders often lack these very basic skills. “The problem is that managers know more about strategy formulation than implementation. They are trained to plan and not execute” (p. 5). This becomes most apparent when an organization faces challenges or critical changes, as most senior managers turn to strategy formulation yet fail to fully execute their plans. This often occurs because senior managers believe that strategy execution is to be handled by lower- level management (Hrebiniak, 2005). This often leads to a fundamental lack of confidence in organizational leaders by front line and lower level employees. In contrast, high performing organizations with strong retention schemes had a different leadership approach, which involved defining clear behaviors that employees must exhibit in order to achieve departmental and organizational strategic objectives. The formulation and communication of these behavioral guidelines were not delegated to other levels of management. Furthermore, the guidelines were directly aligned with the capabilities and talents of respective employees, with managers offering consistent direction that helps promote the desired behaviors and performance (Jamrog, Vickers, Overholt, & Morrison, 2008; McGuire & Rhodes, 2011). Once strategic priorities are clearly defined and performance behaviors are properly measured, an employee turnover analysis should be initiated. An effective analysis asks three key questions: 1) What is the turnover rate? 2) Who is leaving? 3) What are the costs of current turnover? (Wilson, 2012). However, these questions are only the first piece of the puzzle. Using a systems thinking perspective, there should also be a targeted turnover analysis that addresses current employee feedback, as well as exit interviews with former employees. Current employee feedback should include individuals inside and outside the affected unit, as well as feedback from external organizational stakeholders. Often, feedback results in restructuring to ensure that the underlying arrangement of a department or enterprise is appropriate and can effect change within the system. Sometimes, this restructuring can have transformative effects, both within the affected unit and throughout the entire organization (Senge, 1990a). CONCLUSION A well-developed strategy and its execution are critical to organizational success. Therefore, it is important that those responsible for human resource management (as well as those responsible for an organization’s human capital) adopt the role of strategic partner. Ulrich (1997) describes as “the primary action of a strategic human resource manager is to translate business strategies into HR strategies” (p. 27). Organizations dependent on the ABSRJ 4 (2): 109 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 quality of internal and external customer service must be diligent to attract and retain high perfuming employees. Depending on the size of the enterprise, HR and human capital managers must implement a retention plan that is specific to each unit’s strategic goals. They must meticulously monitor who is exiting the organization, especially high performing individuals. They must closely measure how many employees are leaving and the trends associated with these departures. Finally, the unit-specific and organizational-wide costs associated with this voluntary turnover must be assiduously measured and evaluated. This includes both financial and non-fiscal costs and impacts. The implications for economic policy also becomes a crucial issue when the real cost of voluntary employee turnover is considered. These real costs extend beyond the organizational context and are broader than the direct and indirect impact to an organization’s bottom line. For example, decreased productivity, reduced employee commitment, negative customer sentiment, and increased human capital costs (recruiting, interviewing, and training costs) have direct economic consequences that extend beyond a company’s balance sheet. Most importantly, involuntary turnover frequently provides insight into overall consumer confidence, since employee behavior of this kind tends to increase during times of economic optimism. This kind of insight can be a useful policy guide for both organizations and government policy-makers. Similarly, economies that follow a strategy of knowledge-sharing to drive innovation must closely monitor involuntary employee turnover and its cyclicality. Voluntary turnover erodes the ability to share tangible and intangible organizational knowledge. This diminished ability can extend beyond the confines of an organization and hamper the capacity of an entire sector. For example, a robust 21st century economy is fueled by continually evolving technology and innovation. This demands open channels of communication, where organizations create a vibrant community of repeated and frequent information sharing. The internal organizational challenges faced by involuntary turnover, especially in the area of knowledge-sharing, often impedes the external communication and community building among organizations necessary to generate active and meaningful innovation and growth. These global issues make it vital for HR professionals to take a leadership position in the development of an efficient and effective exit interview process that properly collects all feedback and translates the information into meaningful and measurable changes. Since retention of high performers is especially important, HR must champion targeted pay-for- performance and talent management programs within appropriate departments. Research has shown that high performers react favorably to pay growth and opportunities for personal and financial advancement (Cosack, Guthridge, & Lawson, 2010). However, it is also crucial that HR develops deliverables with each implementation as measurable results will ensure their role as a strategic partner. These types of initiatives, together with the challenge of unwelcome employee turnover, almost always bring organizational change. As change agents, HR professionals must identify and analyze problems, create solutions, and fulfill actions plans (Ulrich, 1997). Management training and other professional development programs help address these issues so that specific plans can be aligned to the goals of the organization. On a systems level, HR must strive to develop a culture that allows employees of all levels to thrive, since “organizational culture holds your organization’s aspirations and the spirit of the place” (McGuire and Rhodes, 2011, p. 36). As a systems lens illustrates, these elements affect the functioning and utility of the entire organization. ABSRJ 4 (2): 110 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 r t I t f REFERENCES Ananthan, B. R. & Rao, S. L. N. (2011). Dynamics of retention: Practices and strategies. SCMS Journal of Indian Management, 8 (4): 120-125. Blau, G. J. & Boal, K. (1987). Conceptualizing how job involvement and organizational commitment affect turnover and absenteeism. Academy of Management Review, 12: 288-300. Cosack, S., Guthridge, M. & Lawson, E. (2010). Retaining key employees in times of change. McKinsey Quarterly, (3): 135-139. Cost of Turnover. (2005). Society for Human Resource Management. Retrieved from: http://www.shrm.org/research/articles/articles/pages/roi_20series__20cost_20of_20tur nover.aspx Dörrenbächer, C. & Gammelgaard, J. (2011). Subsidiary power in multinational corporations: The subtle role of micro-political bargaining power. Critical Perspectives on International Business, 7 (1): 30-47. Fernández-Aráoz, C., Groysberg, B. & Nohria, N. (2011). How to hang on to your high potentials. Harvard Business Review, 89 (10): 76-83. Hrebiniak, L. G. (2008). Making strategy work: Leading effective execution and change. Upper Saddle River, NJ: Pearson Education, Inc. Jamrog, J. J., Vickers, M., Overholt, M. H. & Morrison, C. L. (2008). High-performance organizations: Finding the elements of excellence. People & St ategy, 31 (1): 29-38. Kazi, G. & Zadeh, Z. F. (2011). The contribution of individual variables: Job satisfaction and job turnover. Interdisciplinary Journal of Contemporary Research in Business, 3 (5): 985-992. Laszlo, A. & Krippner, S. (1998). Systems theories: Their origins, foundations, and development. In J. S. Jordan (Ed.). Systems Theories and A Priori Aspects of Perception, 47-74. Amsterdam: Elsevier. Martin, J. & Schmidt, C. (2010). How to keep your top talent. Harvard Business Review, 88 (5): 54-61. McGuire, J. B. & Rhodes, G. B. (2009). Transforming Your Leadership Culture. San Francisco, CA: Jossey-Bass. Milbourn, G. (2012). Job stress and job dissatisfaction: Meaning, measurement and reduction - A teaching note. Journal of American Academy of Business, 18 (1): 1-9. Mitra, J., Abubaker, Y. A. & Sagagi, M. (2011). Knowledge creation and human capital for development: The role of graduate entrepreneurship. Education & Training, 53 (5): 462-479. Nyberg, A. (2010). Retaining Your High Performers: Moderators of the Performance-Job Satisfaction-Voluntary Turnover Relationship. Journal of Applied Psychology, 95 (3): 440-453. Ortlieb, R. & Sieben, B. (2012). How to safeguard critical resources of professional and managerial staff: Exploration of a taxonomy of resource retention strategies. The International Journal of Human Resource Management, 23 (8): 1688-1704. Paajanen, P., Kantola, J., Karwowski, W. & Vanharanta, H. (2010). Applying systems thinking in the evaluation of organizational learning and knowledge creation. Systemics, Cybernetics and Informa ics, 3 (3): 79-84. Premalatha, P. P. (2011). Voluntary turnover in knowledge-intensive organizations: A conceptual framework. IUP Journal of Organizational Behavior, 10 (4): 54-68. Proenca, E. J. (2012). A model of antecedents, mediators, and moderators of satisfaction and turnover among service workers. n ernational Journal o Business and Social Science, 3 (5). ABSRJ 4 (2): 111 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 r t t t Rice, M. (2011). Compensation and talent strategies that minimize turnover. Chief Learning Officer, 10 (8): 32-33. Senge, P. M. (1990a). The fifth discipline: The a t and practice of the learning organization. New York, New York: Doubleday/Currency. Senge, P. M. (1990b). The leader’s new work: Building learning organizations. MIT Sloan Managemen Review, 32 (1): 7-24. Senge, P. M. & Fulmer, R. M. (1993). Simulations, systems thinking and anticipatory learning. The Journal of Managemen Development, 12 (6): 21-38. Skarzauskiene, A. (2010). Managing complexity: systems thinking as a catalyst of the organization performance. Measuring Business Excellence, 14 (4): 49-64. Stone, K. B. (2010). Kaizen teams: Integrated HRD practices for successful team building. Advances in Developing Human Resources, 12 (1): 61-77. Ulrich, D. (1997). Human Resource Champions. The next agenda for adding value and delivering results. Boston, Mass: Harvard Business School Press. Westover, J. H. (2012). Comparative international differences in intrinsic and extrinsic job quality characteristics and worker satisfaction. International Journal of Business and Social Science, 3 (7): 1-16. Wilson, C. (2012). Retaining good people through a focus on talent and purpose. Human Resource Managemen International Digest, 20 (2): 29-31. Yurtseven, G. & Halici, A. (2012). Importance of motivational factors affecting employees satisfaction. International Business Research, 5 (1): 72-79. ABSRJ 4 (2): 112 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 ABSRJ 4 (2): 113 ISSN 1855-931X CREATING BEST PRACTICES IN SAUDI ARABIA Meshari M. S. Alwazae Depar men of Compu er and Systems Sciences, Stockholm University t t t t t t t Stockholm, Sweden meshari@dsv.su.se Harald Kjellin Depar men of Compu er and System Sciences, S ockholm University Stockholm, Sweden hk@dsv.su.se Abstract This paper investigates identification of best practices (BPs) in Saudi Arabia. We adopted an established theoretical framework as a basis for developing questions and conducting the study. Interviews were held with selected informants at a number of large organizations. The analysis of interview results showed that organizations are not acquainted with the formal BP framework. They linked identification of BP to documented practices, to communities of knowledge, or to specific publications. However, Saudi Arabia's attempts at sharing BPs can be viewed as a positive step forward. We suggested that a BP team is needed to obtain some direction toward evaluating and sharing BP. Our study revealed the need for having a clear working template for creation and documentation procedures of BP. Also, we suggested that a contribution from an online network of BPs is a recommended, and most useful, approach for supporting the collaboration between business enterprises in terms of sharing BP. Keywords: Information System, Knowledge Management; Knowledge Creation; Best Practices; Saudi Arabia JEL Classification: D83, D80, L25 I. INTRODUCTION Much work has been done on information system (IS) strategy since its inception in Kriebel (1968) and McFarlan (1971). Various approaches and models include strategic data planning, long-range planning; business-driven approaches, business process analysis and the proactive use of information technology (IT) for competitive advantage (e.g., Porter & Millar, Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 1985; Hammer, 1990). Recently, e-business and knowledge management (KM) have been considered in isolation from IS strategy and organizational learning (Swan et al, 1999) which hinders the achievement of the performance goals of an organization (Larsen, 2000). To address that problem, organizations have begun to re-examine and reorganize their structures, business processes, culture, and information technologies from a knowledge perspective by implementing KM (Prusak & Matson, 2006), and expect to gain the ability to manage their knowledge more efficiently and achieve superior performance. In agreement with Baker and McKenzie (2008), we believe that the primary differences between countries are based upon organizations’ structural bases. Despite the increased awareness of interest in KM in SA, the context is surrounded by a wide range of incoherent views and perceptions. To the best of our knowledge there are few empirical studies that investigate the current state of best practice (BP) in a variety of public and private organizations, which intend to implement BPs in Saudi Arabia (SA). In many organizations it is still unclear how the organization initiates and implements KM projects and exactly how sharing BPs can contribute to business growth and development. The current need for a well-defined view of the subject and the lack of available empirical experiences of how it should be done have motivated us to conduct this study of KM-related issues in SA (Al- Shammari, 2008; Bontis, 2002; Hutchings & Weir, 2006). The main objective of this study is to carry out an investigation of the state of creating BP and the industrial perceptions on KM among government and non-government organizations in SA. The purpose of this paper is therefore to identify BPs for developing organizational KM capability in organizations in SA. Particularly, the focus of this study is to investigate how BP can be organized and indexed in order to be easily applicable in the culture of SA. The structure of the rest of the paper is as follows. Section II provides a brief literature review and Section III reveals the theoretical model and research question. Section IV explains the research design and Section V presents the results. The findings of the study are explained in Section VI and the discussion is given in Section VII, followed by conclusion in Section VIII. II. LITERATURE REVIEW Identifying and sharing BPs can affect a company’s performance in a number of ways such as return on investment, the value added per employee and customer satisfaction (Goodman & Goldman, 2007; Harrington, 2004; Pfeffer & Sutton, 2006; Gold et al, 2001). Therefore, many decisions about BPs are strategic and require substantial resources to improve a firm’s performance (Schendel & Hitt, 2007). Hence, the identification stage of BP is an essential process for gaining competitive and collaborative advantages. Smith et al (2010) observed that when there is a supportive culture, an adaptive foundation prior to implantation and social networking between managers to evaluate risk, the benefits of BP could be felt. Holton (2004) and Short (2006) suggested that there is a need for reliable research to ensure that BPs cover both practical and theoretically aspects. This has encouraged us to look at BP from a creative perspective. Barrett and Stanley (1999) argued that there are several situations when the implementation of BP fails to produce a satisfactory result for some of the parties involved. This failure can be regarded as the result of concentration on providing a competitive edge and ignoring the issues of why and how the practices are successfully implemented. During the implementation of BPs, it is not sufficient to focus on the emulation of the success of key ABSRJ 4 (2): 114 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 players. BPs should also be implemented to suit the environment in which the firm is operating (Davies & Kochhar, 2000). The successes of the USA and Japan are commonly cited as leading examples in terms of the adoption of BPs to achieve manufacturing performance. In particular, much interest has been paid to the role of Japanese plants operating overseas in diffusing manufacturing BPs associated with world-class performance (Voss & Blackmon, 1996). Japanese practices therefore serve as BP models for local firms and as a means of emulating success to aid the successful transfer of practices (Davies & Kochhar, 2000). We argue that the manner in which BP is adopted can provide examples of the diffusion of BP approaches in other sectors and countries. Based on a comprehensive literature review, a set of models and frameworks that can be used for identification and usage of BPs are identified and analyzed to enable selection of the most suitable assessment model. Shull and Turner’s Handling Process model (2005) is based on a deep study of all previous efforts at identifying BPs. The approach has been applied in the context of the US Department of Defense’s BPs Clearinghouse (Dangle et al, 2005). This approach provides analyses of several BPs that range from theoretical practices to practices for which experimental data are not readily available. It provides a BP repository in an initial phase and then the approach undergoes evaluation before being opened up to the user community. Also, the approach analyzes lessons learned and then reports on them in the near future. III. THEORETICAL MODEL AND RESEARCH QUESTION We have used prominent literature to investigate the processes used to identify BPs. To conduct this study, we first examined how companies, institutions and governmental organizations identify their BPs in SA. To that end, we used the handling process for BP developed by Shull and Turner (2005). The model was chosen because it reveals in clear steps how to identify, qualify, analyze, validate and disseminate BPs. This model distills information about the practices into a particular form that is easy to work with and understand. Our study is supported by the adopted theoretical framework presented above which puts emphasis on the identification process of BP inside organizations. The five phases in the model show that the resulting guidelines are a relevant methodology that can be used to understand KM practices. An integrated framework reveals different components in each phase. Shull and Turner (2005) identified five primary phases of the BP handling process. For each phase a set of components are identified to show how each phase can be operated. We employed content analysis to examine the model and define components for each phase. These components are based on the description found in Shull and Turner’s paper and served as the basis for developing the semi-structured interview questions used in this study. The identified phases and their corresponding components are presented in Table 1. ABSRJ 4 (2): 115 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 Table 1: Creating a process for best practice (Shull & Tuner, 2005) Phases of each process Components of each of the phases described in the left-hand column Identification 1- Collect ideas from users: Collect ideas, experiences and suggestions about important content that is currently missing. 2- Review potential candidates: Review the practices, which are collected from users, to select potential ideas, experiences and/or suggestions. 3- Categorize: Group similar potential candidates to classify the suggestions and group ideas. 4- Consolidate: Combine the more relevant practices. 5- Prioritize: Rank the practice according to the need to be developed. Quantification & Qualification 6- Investigate practices: The highest priority practice is investigated to develop a set of representative evidence sources. 7- Literature search for new results: Collect evidence for the practice from the literature. 8- Interview practitioners for new results: Collect evidence for the practice from interviews with practitioners. Characterization 9- Check for agreement: The summarizer, an expert in the practice area, decides whether all of the evidence sources accord with the agreement. 10- Summarize: Create a summary of what is known about the practice to describe the expected result based on the collected evidence. Validation 11- Panel review: A panel of experts on the topic reviews the collection of evidence sources and their summary. 12- Use special criteria: Each member of the panel uses a specific set of perspective-based focus questions to review different aspects of the material. 13- Sufficiency of validity: Reviewing result in sufficient quality for the practice. Packaging & Dissemination 14- Publish BP: The validated BP is published within the company. 15- Develop guidance: Develop simplified implementation guidance. 16- Connect users with information: Information about the BP may be communicated to potential users via a wide range of media and creating and designing communities of practice or meeting places. As discussed earlier, in this study we focus on the experiences and general practical practices among Saudi companies, institutions and government organizations. The framework for creating BPs derived from the literature provides this study with references that are used in interpreting collected data about how the BPs can be used. Our research question is therefore an investigation of the extent to which SA's BPs satisfy the quality criteria of the Shull and Turner model. IV. RESEARCH DESIGN To investigate the identification and usage process of BPs across organization, institutions and the private sector in SA, we used content analysis procedures to explore participant responses. We decided to guide our proposed categorization using a priori variables based on the adopted framework for this study. Myers advocates that content analysis should be used to complement previous quantitative research results to investigate new facets of the studied phenomenon (Insch et al, 1997). This allowed us to study the characteristics of ABSRJ 4 (2): 116 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 communication and make inferences about the consequences of practices (Bryman & Cramer, 2001). Furthermore, we acquired data from the interviewed managers, as recommended in “content analysis” (Neuendorf 2002), by using a list of specific follow-up questions concerning: 1) who were responsible for designing the descriptions of BPs, 2) for who was the stored BPs intended, 3) why was the process designed in this specific way, 4) what were the expected effects of this design, and 5) to what extent did it have the desired effects. The content analysis also included direct participant observation, observing other institutions during visits, and attending several key meetings. Also, during our research we were allowed access to a number of documents, which were also interpreted from the perspective of content analysis as described above. We regard the philosophical perspective adopted in this study as interpretative rather than critical: that is, we aim to understand the current situation instead of analyzing abilities. We also acknowledge that such a perspective impacts on both the way in which research is conducted and our research findings (Howcroft & Trauth, 2008). The interview questions were inspired by Shull and Turner (2005), and were formulated in order to explore the identification of BP in regard to organizations’ structural variables and core management practices. Another aim of the interviews was to test the relevance of the BP phases, which were presented above in Table 1, by studying to what extent they can be applied to different organizations. The semi-structured questions concerned familiarity with the five phases of handling BPs, which are identification, quantification & qualification, characterization, validation and dissemination, and also management of practices in the participants' organizations. These questions allowed participants to add qualitative information that could indicate the identification and usage of BP. The purpose with the interviews were to make the informants to provide relevant information about the use of BP and from these answers we intended to find indications of possible applications systems, for handling the administration of BPs, that could be designed to support managers. The interview started with general questions regarding the methods that were used to share knowledge, the problem solving techniques and the approaches for using BPs in the organization. Our interview questions were posed in semi-structured interviews based on the theoretical foundation extracted from from our literature study. The phases of handling BPs and their components served as a basis for formulating questions: i.e., one question was formulated for each component of each phase that were described in Table 2. This allowed us to add important insights that arose during conversation (Insch et al, 1997). Then, participiants were asked to evaluate how the organization creates BPs by using a Likert scale with values ranging from 5 to 0. For each of the 16 components for creating BPs, we formulated a scalar question. The general purpose of asking the scalar questions was to arrive at some evidence concerning the quality of the companies working methods for acquiring data when designing descriptions of BPs. Please find the result of these 16 questions further on in the result section. We examined the managers’ evaluation and incomplete answers by cross- referencing their responses with their answers during the interview. The intention behind the questions was obviously to find out how BPs were created and used in SA. Each interview lasted between 60 to 90 minutes and was recorded and transcribed later. Interviews were conducted over a six months period. Seventeen major SA government, semi-government and non-government organizations were investigated in order to gain an overview of the diversity across the three sectors. The ABSRJ 4 (2): 117 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 central criteria for selecting the organizations for the studies were to find the organizations that already used BPs to some extent. Government organizations, also called the public sector, are fully funded by the government and administratively controlled by the Minister, whereas semi-government organizations, or simply institutions, are financed by the government but administratively controlled by independent stakeholders. In our selection of organizations we focused on organizations, which already have IT infrastructure that supports the use of BPs. The public sector includes the Ministry of Health and Ministry of Education. The Ministry of Health was chosen because recently it announced a plan for upgrading its IT infrastructure to enhance its performance. Investments in information technology are increasingly important for the Ministry of Health, and success will depend on the organization’s ability to integrate information technologies in most routines. This makes the Ministry of Health a good candidate for our study because findings pertaining to this organization can contribute to the upgrading plan that is presently being designed by the Ministry. The institutions include the King Fahad Medical City and the King Saud Medical City. By focusing on and reviewing some of these health institutions as well as the Ministry of Health, we can claim that any KM issues regarding sharing BPs in these examples are a reflection of the whole healthcare sector. The non-government organizations, or simply the private sector, include two banks and three telecom service providers. The Saudi Telecom Company (STC), Zain and Mobily are the only three-telecom service providers in SA with a total customer base of more than 15 million. Also, the telecom market in SA is regarded as the fastest developing market and one of the most important markets for handling information and knowledge. By covering this market, we can claim that all KM issues regarding BP that other markets face can be covered. The participants (in total 17) are purpusly selected and the interviewed subjects held different positions, i.e. they either held the job title of CIO (65%) or IT manager (35%). These participants belonged to the government organizations, institutions, and private sector mentioned above and they should be IT managers. The interviews were aimed at providing an overview of each organization’s mechanism to identify BPs. The participants received the questions at least one week prior to the interview to enhance an understanding of the questions and they all allowed the meetings to be recorded. V. RESULTS In this section the results for the major Saudi institutions and government where BPs were collected are discussed. In the first column of Table 2 we present all components that were used to ask questions with scalar answers concerning to which extent the company had reached satisfactory results from implementing the approach described in the component. In the second column we present the evaluation assessment scale average of each component for the public sector that includes six Ministries. The assessment scale average from six institutions is presented in the third column. The fourth column presents the scale average of the private sector (five companies). Based on the answers of the interviews and their evaluation assesment, the values of the variables were calculated on a scale from zero to five. A value of zero indicates that the variable is not supported by the organization, whereas a value of five indicates that the variable is fully supported in the organization. When it was obvious that they had implemented the process that the variable describes, we scored the value as five and if it was not implemented we scored the value as zero. The mean values of each sector (government, semi-government and private) are presented below in Table 2. ABSRJ 4 (2): 118 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 Table 2: Public, institutional and private scale average regarding the adopted framework To what extend did your organization? Public Institutions Private 1- Collect ideas from users 0.83 1.5 2.33 2- Review potential candidates of descriptions 0.33 1 1.08 3- Categorize ideas from similar candidates 0 0.42 0.92 4- Consolidate: Combine the more relevant practices 0 0 0.08 5- Prioritize: Rank the practice according to the need to be developed 0.08 0 0.08 6- Investigate practice: To develop a set of representative evidence sources 0.33 0.5 0.83 7- Literature search for new result: Collect evidence for the practice from the literature 0.08 0.17 0.17 8- Interview with practitioners for new result: Collect evidence for the practice from interviews with practioners 0.92 0.75 1.58 9- Check for agreement with an expert of the area 0.17 0.17 0.5 10- Summarization: Create a summary of what is known about the practice 0.92 1 1.5 11- el of experts to review the quality of 0.58 0.5 0.67 Use a pan the BP’s 12- ns to review special 0.08 0.17 0.17 Using focus questio aspects of quality 13- lt in 0.08 0.17 0.17 Sufficient validity: Reviewing resu sufficient quality for the practice 14- validated BP 1.42 1.58 1.92 Publish best practice: check if the is published within the company 15- simplified 0.25 0.33 0.42 Develop guidance: Develop implementation guidance 16- Connect users with the descriptions of BPs 0 0 0 From Table 2, we note that organizations documented their BPs in the summarization component. The component did not last long, however, as it was not based on previous components. This indicates that reading the description does not provide employees with the accurate information they need and presents the expected result. We found that the BPs are often documented in an informal manner, i.e., a format procedure for defining and collecting BP is not defined. Also, the descriptions of BPs are shared via a web-based forum or shared folder or document with employees and these practices have only circumstantial justification ABSRJ 4 (2): 119 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 specially in private sectors. The average scale for developing guidance for the published BP al within the organization or firm, owever. This makes the practices difficult to explore and it makes it difficult for practitio e is low in all sectors. We note that none of the public sectors, institutions and private sectors use any kind of media to communicate with users about information regarding published practice. The packaging and dissemination phases of the practices are considered as relevant and are consulted only by practitioners in their day-to-day activities. They are developed autonomously and maintained voluntarily by an individu h ners to find relevant descriptions of BPs. Figure 1: The average scale for public sectors, institutions and private sectors Figure 1 shows that most values are very low. The private sector are keen to collect ideas, experiences and practice as the discovered average was 2.33 and it was also found that these organizations make little effort to review these practices, with an average of 1.08. The effort made by private sectors to collect evidence for new ideas or practices can be seen as a rise in the chart above. From the figure it can be observed that the average values of components related to the initial components (collect ideas from users and review potential candidates) are high, but these values decrease as we proceed to the next five components (categorize, consolidate, prioritize, investigate practices and search the literature for new results) until the component which describes how they interview practitioners is reached: i.e., there is an increase to 1.58 in the average value of the component interview with practitioners for new results. The values of the next five components (check for agreement, summarization, panel review, using special criteria, sufficient validity) are not very until till publishing BPs, whose average values are 1.92. The values of all components are very low for public sector organizations, as they need to focus on all components and follow clear steps until they publish BPs; they show an average value of 1.42. ABSRJ 4 (2): 120 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 VI. FINDINGS Our study reveals a better use of technology in organizations compared with what was reported some years ago by Al- Shammari (2008). The interviews provided general information regarding the structure and general procedures of each organization. When we ask participiants how do they view their organizations approach to using BP, they had some concerns about how the BP should be abstracted in order to be of general use. They also had some concerns about how the BPs should be implemented in the workflow of the organization. BP creation and distribution through the organization might success but it needs support from higher management. We noted that there was generally no well-structured mechanism for creating BP in the organizations where we interviewed managers. Some organizations are adopting an existing framework to create and share BP such as Microsoft Operation Framework and Microsoft Solutions Framework. However, these frameworks are not commonly used and are not well understood by employees, as they need to be educated in how to use the frameworks, while other employees, who even if they are using the framework, do not follow the work and procedures on how the framework should be used. The organizations are trying to broadcast their best knowledge to transfer it to other people and organizations. This can facilitate moving the organizations from being reactive to proactive in order to solve the problem before the user noticed it. We explicitly asked to what extent there were any formalized routines for creating BP and we found that they did not exist. In five organizations the design of BP was considered as a voluntary work, which was not formalized. Our interpretation of the results of the interviews showed that CIOs and managers were not well acquainted with the use of a formal BP framework when they wanted to create BP inside their organizations. Many of them related the identification of BP to documented practices, to communities of knowledge, or to specific publications. Of interest was our observation that the managers considered the priority of the BP framework to be improving internal practices. Surprisingly all the managers and CIOs (in total 17) stated that their organizations lacked such a framework to create BP and stated the importance of having BP in their organizations. The characterization and validation phases were not conducted, as they should be. Thus we could not test how it was done and hence these interviews did not last for long. It was common to see BPs that were considered as valid for a certain limited time before they disappeared. Therefore it appears that organizations are not linking the creation of a BP framework with a coherent organizational learning scheme. In the findings we noted that there is no formal framework adopted in the organizations that we studied. Identifying BPs in some private, institutional and public sectors can be viewed as a representation of recommended way of accomplishing tasks. This increased the concern to establish awareness of dissemination of BPs. We noticed that participants viewed some practices as BPs just because they progressed over time and then became accepted as BP. When companies have well-identified practices, there will be a positive impact on their operations. When low collected ideas rates exist, especially in the private sector, it means that these ideas will disappear and therefore be dismissed. According to our results the levels of identifying BPs were marginally higher in the private sector than in the institutions and in the public organizations. A majority of private sector organizations collected ideas from their employees. We found that some firms in private sectors that they were explicitly concerned to help employees to learn how to apply the BPs. Private sectors have a distinctive way of sharing their BP. The Saudi Telecom Company for instance studied the ABSRJ 4 (2): 121 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 initial impact and applied the result to formulate and identify their BPs for fourth-generation mobile technology where high-speed Internet is available via smart phones. This is because fourth-generation technology is new to the market and there are no documented BPs corresponding to the adaptation and use of this technology. They were more concerned with adopting the creation process of BPs, especially the identification phase, but they seemed to be misguided about the quantification qualification and on the characterization phase. They did not follow the structured sequence of events in the identification components as recommended. The investigation reveals that participants appear to have a better conceptual grasp of BPs than of the more abstract concept of knowledge and information. Currently, most organizations have yet to formulate or adopt a formal agenda for identifying BPs. The three most important factors that facilitate identification of BP are: having a BP team to supervise sharing BPs, a mechanism to identify BP, and the right organizational culture. For instance, one of the telecom companies, who have subsidiaries in Bahrain, Kuwait and Egypt, faces some issues related to cultural differences when implementing BPs from the subsidiaries. The cause of the cultural difference was that some employees from these subsidiaries came to Saudi with BPs that had been designed in another cultural context. They worked well when they were applied in the subsidiaries but they did not work well in Saudi Arabia because of the culture environment and different markets needs and demands. Also, we noted increased interest and support on the part of CIOs and top management that could be an ideal foundation for sharing BP. From our analysis we found that organizations have yet to fully appreciate the point of sharing BPs and still lack a focused strategic vision and plan for doing so. Hence, there is no framework for sharing the BPs. We found that five organizations articulated the importance of having a BP team to help employees develop and exercise BPs during their work. We also found two companies who positioned a BP team either as an independent functional unit or located it within their IT department. A BP team's activity has significant effects in terms of encouraging employees to share BP. Managers should pay particular attention to the identification phase to ensure that experience is captured in a feedback loop to help avoid similar mistakes in future decisions. In addition, the identification stage of BP in an organization was found to have a significant and positive effect on BP team activity. Our findings suggest, however, that the role of a BP team can be increased when the BP identification phase matures. Of course, as an organization moves to a more mature process of identifying BP, the focus may need to shift from a centralized knowledge repository consisting of mostly internal knowledge to a more flexible organizational structure that is designed for creating and sharing knowledge both inside and outside the organization. The assistance or service of a BP team should be continuously provided for connecting BP initiatives to business processes (Lee & Kim, 2001). VII. DISCUSSION The study reveals that the Saudi organizations did not follow an accurate strategy to identify BP especially after collecting ideas. When the identification phase is violated, risk and cost can increase failure of effort besides failing to identify the appropriate practice. The identification phase of practices must be followed as a sequence of events. If there is a social context, it will be easy to facilitate these components of the identification phase, i.e., (1) Collection, (2) Reviewing, (3) Categorizing, (4) Consolidating and (5) Prioritizing. This leads us to argue for the need to develop an online model for sharing BP. Such a model ABSRJ 4 (2): 122 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 could, for instance, be designed to present successful business processes, which could then even be transferred from one business entity to another. Quantification & qualification and characterization phases are important not only for organizational learning and collaborative work but also for competitive advantage and for employee motivation. In all organizations that were studied there was a neutral or positive perception regarding the need for interviewing practitioners in order to find new results and summaries of practices. The idea of publishing BP in organizations was rated higher by the interview subjects than were other components, because both CIOs and managers indicated that they wanted to share information in order to generate organizational improvements. One participant stated, “In our organization we are aware of the problems related to loosing an expert and thus. We always prefer to have every BP written in the form of an advice so the BPs can be used as reference for other employees.” A final component concerned with connecting users with information by having them participate in meetings and informal gatherings is ignored by SA organizations, which further hinders the collection and usage of BPs. This indicates that a structured approach for sharing BPs in private sectors, institutions and public sectors is not adopted, i.e., the phases of the organization do not support knowledge sharing. It could be argued that collaboration environments such as forums (which allow informal, non-structured interaction and knowledge sharing between employees) may provide a practical option for BP processes. Overall results indicate low levels of interest in investing more in the creation process of descriptions of BP in SA organizations. The study is conducted in organizations from only one country, which reduces the generalizability of the results obtained. The study also shows that the creation process of BP in Saudi organizations is not followed in a structured manner; this is inferred from the lower values in the graph, and also reduces the representativeness of practices. Thus, our study shows that the creation process of BPs in the region is sparse. BPs in the organizations studied should not be underestimated although directors and managers are not always aware that they are managing them. The research revealed that the BPs in SA were not measured with an additive model based on the tested components. Although composite measure methods have been widely used in KM literature (e.g., Matzkin, 2008; Salojärvi et al, 2005), Saudi organizations are not aware of them yet. VIII. CONCLUSION The primary goal of creating BPs is to support organizational competitive and collaborative perspectives. This has made researchers view BPs as the encapsulation of experience (Goodman & Goldman, 2007). Presently some of the preliminary efforts to share BPs in SA can be viewed as a positive step forward, but SA still has some way to go. We suggest that the use of information technologies could offer effective solutions to current difficulties in structuring and contextualizing the sharing of BP content, and also in facilitating the conversion of knowledge from tacit to explicit forms. To meet the challenge of identifying BP in SA, an organization should be able to assess its preconditions for successful BP initiatives and their impacts on KM performance (Gold et al, 2001). The paper also shows that a BP team can obtain some direction toward evaluating and sharing BP. If developing a BP system is a necessary condition, organizing and operating an active BP team may be deemed as a sufficient condition for a successful BP effort. Nevertheless there is a strong need for top management support in identifying the existence of a BP. We conclude that if organizational members are not motivated to share their ABSRJ 4 (2): 123 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 t t knowledge, a BP initiative is doomed. A conscientious BP team, which seeks to help, share and not dictate to organizational members in terms of sharing knowledge critical to their problem-solving, seems essential for obtaining organizational members’ satisfaction with the BP initiative. The result of this work is an overview of how institutions and the public and private sectors perform in terms of creating and managing their BPs. It shows that despite their active interest in managing organizational knowledge, most organizations in the region of SA do not yet understand the challenges involved in identifying and managing BP initiatives. This paper depicts an actual situation in most organizations where the process of creating BPs is not well formalized, resulting in complications and misunderstanding of the chosen practices. In the findings we noticed that no formal framework was adopted in any of the organizations in our case studies. To enhance innovation within Saudi organizations, they first need to adopt a clear mechanism or framework to create BPs. This will serve to increase communication and collaboration. Our study revealed the need for having a clear working template for documentation procedures of BPs. This can be regarded as a road map, a user guide, and an operation guide that can serve to decrease the common mistakes associated with designing BPs without considering all quality aspects in the design process. Based on years of experience and discussions with domain experts, we recommend a BP team to be aware of the quality aspects of BPs that we have described in this paper. REFERENCES Al-Shammari, M. 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An empirical approach to best practice identification and selection: the US department of defense acquisition best practices clearinghouse. Proceedings of International Symposium on Empirical Software Engineering (ISESE), Noosa Heads, Australia, 133-140. Smith, F. I., Stone, T. H., Kisamore, J. L. & Jawahar, I. M. (2010). Decision-Making Biases and Affective States: Their Potential Impact on Best Practice Innovations” John Wiley & Sons Ltd, 27 (4): 277-291. Swan, J. A., Scarbrough, H. & Preston, J. (1999). Knowledge Management – the next fad to forget people?. Proceedings: 7th European Conference on Information Sys ems, Copenhagen, Denmark, 23-25 June, 2: 668-678. t Voss, C. & Blackmon, K. (1996). The impact of national and parent company origin on world- class manufacturing Findings from Britain and Germany. International Journal of Operations & Production Management, MCB University Press, 16 (11): 98-115. ABSRJ 4 (2): 125 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 ABSRJ 4 (2): 127 ISSN 1855-931X THE EFFECT OF SUBSIDIES ON CONSUMER’S SURPLUS Caroline Buts and Marc Jegers1 Abstract The EU policy with regard to State aid is a regularly debated topic in multiple branches of the academic literature. Interest in the subject is growing and techniques used by the European Commission to assess its effects have evolved over time. However, too little is known about the economic impact of State aid measures. In addition, questions are being raised about the welfare standard used when evaluating aid proposals made by Member States. More specifically, a shift from a focus on producers and markets towards a broader welfare measure, including the effect on consumers, is called for. In response, this paper models the effect of subsidies on consumer’s surplus. A duopoly in Bertrand competition is studied. The effect of granting a subsidy to either one or both duopolists is calculated and compared to a situation without aid. In both cases, consumer’s surplus increases compared to the situation without aid. In this way, the effect on consumer’s surplus can be quantified and should in a case analysis later be compared to effects on producer’s surplus and government cost. The quantified effect on consumers can also be seen as a measure for how well a market failure is targeted, i.e. it allows us to measure the usefulness of an aid by looking at the value for the end-user of a product or service. Key Words: State aid, welfare, consumer’s surplus, microeconomics Topic Groups: microeconomics, industrial organization, politics and business JEL Classification: D12, D00, D04 1. INTRODUCTION From time to time, governments intervene in the market in order to stimulate domestic industries or to correct a market failure. Especially within a single market-multi country economy such as the European Union, where goods and services can move freely between countries, this can have serious consequences for firms competing across borders, including wasteful spending when a subsidy race between governments arises. The notion of State aid was already embedded in the founding Treaties of the European Union. In a nutshell, any measure that grants an advantage to an undertaking, is selective, puts a burden on state 1 Caroline Buts is a research fellow of the Research Foundations Flanders (FWO). Both authors are at the Vrije Universiteit Brussel, department of Applied Economics (APEC). Suggestions made by Gert Huybrechts are gratefully acknowledged. Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 resources, distorts competition and affects trade between Member States is forbidden, with some exceptions confirming the rule. The system applied by the EU to assess proposed State aid measures has been evolving since the beginning, with other approaches, better evaluation techniques and more transparency. As mentioned by Buelens et al. (2007), this kind of State aid control only exists in the EU and the EFTA. Moreover, from Blauberger (2009) we learn that EU State aid control even goes beyond the mere prohibition originally incorporated in the Treaties. The European Commission has successfully used it as a policy tool to shape or direct State aid policies of Member States by promoting the image of what they consider ‘good’ aid and at the same time discouraging ‘bad’ aid. The extent of the legislative and guiding framework with regard to State aid that is currently in place within the European Union proves that it is considered important to constrain governments in their aid policies towards industry. Some basic rules such as the general prohibition and possible exceptions as well as an understanding of the concept of State aid are clear. However, there is still a substantial part to be studied with regard to the economic impact of State aid and the preferred manner of investigating a notified State aid as becomes clear from the questions raised amongst others by Buelens et al. (2007). Martin and Strasse (2005) make a plea for more attention towards the effects of State aid on consumer’s surplus. The move towards the utilization of a social welfare standard in State aid analysis (instead of only looking at an effect on rival undertakings), proposed by Nitsche and Heidhues (2006), emphasises even more the relevance of knowledge about the effect of State aid on consumers, knowledge which is lacking. More generally, “the impact of public support policies remains seriously under-researched and more research is crucially needed to draw firm conclusions” (Buigues and Sekkat, 2011, p.1). With this paper, we try to fit one more piece into the puzzle by contributing to a better understanding of the effects of State aid, looking at changes in consumer’s surplus caused by subsidies to firms. The findings are policy relevant, mainly in two ways. First, the effects on consumers can by means of the model be taken into account when evaluating State aid measures by comparing them to effects on producer’s surplus and government cost under the condition that the necessary data are available or can be estimated. The model can be adapted to fit specific industries and aid measures. Second, the model studies changes in consumer’s surplus implying that it can be used by policy makers and designers of aid measures as a means to calculate the impact of an aid on the end-users of a product or service. The paper is organized as follows: the next section discusses literature on welfare effects of State aid as well as on competition effects. The third section builds on existing theory to further develop a model explaining the effect of State aid on consumers by looking at changes in consumer’s surplus. We briefly discuss situations of monopoly and quasi-perfect competition and then move to a more frequently observed market structure, oligopoly. Here, we compare the situation where no aid is granted to the one where a subsidy is given to one or both firms of a duopoly. The fourth section concludes. 2. LITERATURE Economic literature covers a variety of aspects with regard to State aid. Studies try to bring clarity over effectiveness, motives and effects on competition and welfare. The topic is studied in light of strategic trade policy, where State aid is considered to be avoided, or it can be seen as a part of competition between governments, to come to an efficient allocation of public resources. Often, aid for one specific objective is studied such as aid for rescue and restructuring, or aid for research and development. This tends to be the case in ABSRJ 4 (2): 128 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 effectiveness and efficiency studies. This is understandable as effectiveness is measured differently depending on the objective. Moreover, studies are mostly country and time specific, sometimes resulting in contradictory findings. This paper focuses on the welfare and competition effects of State aid and has a broader scope than just aid for one specific objective. We study one form of aid, i.e. subsidies, but do not specify the objective or industry. The general framework proposed in section 3 can in principle be adapted to fit any kind of subsidy or industry. The literature review below thus focuses on welfare effects of State aid in general. The other and more extensive lines of literature with regard to State aid fall outside the scope of this paper. 2.1. Discussion on the most appropriate welfare standard Defining welfare effects of State aid requires first of all an agreement on the definition of the concept welfare itself. What exactly should be included in a welfare calculation is frequently a point of discussion. Depending on the policy, welfare analysis can study effects on consumers, but might also include changes in producer’s surplus. This exactly pinpoints an important difference between methodologies of State aid control and that of other parts of competition policy. Indeed, in merger and antitrust policies consumer welfare is the primary focus when making a case analysis. State aid policy was designed to avoid wasteful subsidy races and is primarily concerned about competition distortions. Discussion is however ongoing to move towards a broader welfare standard for State aid evaluations. Martin and Strasse (2005) as well as Friederiszick et al. (2006) state that a proper welfare analysis should include effects on consumers. The aid granting authority of course looks at the interest of local producers. The European Commission focuses on the effect on foreign producers. This unilateral focus on producers asks for a countervailing focus on effects on consumers. Nitsche and Heidhues (2006) suggest a social welfare standard that includes also equity effects. Consumer’s and producer’s surpluses can be compared to the cost of the policy. The benefit of consumers may not always go together with the benefit of producers just as an intended national gain does not necessarily entail beneficial effects at the international scene. From Friederiszick et al. (2006) we learn that State aid can try to increase welfare mainly in two ways. It can target efficiency and aim to shift the welfare frontier outwards, or it can have equity rationales and thus cause shifts along the welfare frontier. A discussion or evaluation on efficiency is often easier than one on redistribution. Nevertheless, both are essential in a complete study of welfare. 2.2. Welfare effects of State aid As mentioned, welfare studies focus on different types of aid. We try to provide an insightful and structured overview of this literature. According to Fumagalli (2003), aid to attract foreign direct investment can have welfare increasing effects. This can only be the case when the loss of domestic firms due to increased competition does not outweigh the benefit of the investment that was attracted and the benefit stemming from increased competition itself. It will thus depend on the relative sizes of both effects whether the aid turns out to be beneficial or detrimental to (local) welfare. Chor (2009) also studies aid to attract investment, but differentiates between State aid targeted at variable costs and State aid targeted at fixed costs. He finds that small subsidies are welfare increasing for the host economy. Furthermore, this increase in welfare is larger when the subsidy aims to lower variable costs than when affecting fixed costs. While studying an integrated market, Collie (2000, b) explains that the effect of prohibiting State aid depends on the trade-off between an increased deadweight loss from oligopoly ABSRJ 4 (2): 129 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 power and a reduction of deadweight loss due to distortionary taxation (used to finance the aid). As the latter more than compensates the former, a reduction or prohibition of State aid will raise overall welfare. To that end, Collie pleas for a gradual reduction of State aid by setting ceilings and gradually lowering them. In a similar study on the WTO Agreement on Subsidies and Countervailing measures, Collie (2000, a) concludes that global welfare with a prohibition in place is higher compared to the Nash equilibrium where a given level of subsidies exists. Martin and Valbonesi (2008) study market dynamics of integration and find that the number of firms in equilibrium goes down with economic integration. This is due to increased efficiency as more firms compete. Governments then try to help national firms through this process. Subsidising is here an equilibrium outcome, but at the same time reduces welfare in the market concerned. Bertsch et al. (2010) focus on a more indirect welfare effect of State aid. They show that providing rescue aid on a regular basis, in an industry with negative idiosyncratic shocks, makes it easier for firms to (tacitly) collude. Where this happens, State aid will always have a harmful impact on consumer welfare. Katsoulakos (2005) studies State aid specifically targeted to R&D and lists four components that need to be included when directly assessing welfare within one country: the effect on innovations, the effect on prices and outcome, other efficiency gains and other distortions. In addition, possible welfare effects as a result of a changed level of competition, changes in allocative efficiency and altered R&D performance can also be included. Also, a case study on Airbus by Neven and Seabright (1995) points to welfare losses related to State aid as the consumer benefit created by the entry of Airbus was smaller than the negative effects for the incumbent firm, Boeing. Literature on effectiveness and efficiency of subsidies or other forms of State aid is closely related to the studies on welfare effects. Often both are discussed. Next to the direct welfare effects, subsidies can also have indirect welfare effects when the programme turns out to be inefficient. Every public support policy contains an opportunity cost. Resources spent on wasteful subsidies could have been used for other projects that might have a positive impact on welfare. For this reason, it is interesting to study which percentage of subsidies was well spent. However, going into detail on this extensive line of literature would lead us too far. Nevertheless, some general remarks and conclusions are noteworthy. As mentioned above, these kind of efficiency studies are mostly objective-, time, country-, and industry specific. Results are often contradictory. Overall, it can be concluded that local conditions play an important role in determining the real effect of an aid measure. Nevertheless, Buigues and Sekkat (2011) observe a trend. They distinguish between two types of policies to implement public support programmes: a decentralized policy versus a centralized policy. The former works considerably better than the latter. For support policies to have the best effects, it is thus important to have lower amounts of aid, but a focus on advise, partnerships and sharing of knowledge instead of high subsidies and a central approach. Moreover, a central approach makes it more difficult to have timely controls of the subsidy use in place in order to adjust or stop the projects that are not working. Comino and Manenti (2005) compare several techniques to promote open source software and conclude that the use of subsidies is always welfare reducing, whereas other options such as mandated adoption may benefit welfare. This touches upon an important evaluation point, i.e. to take into account other options than subsidies. While evaluating a proposed State aid measure, it should always be checked whether there are no alternative policy ABSRJ 4 (2): 130 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 actions possible. These can then be compared both on the level of competition distortion and welfare effects. 3. MODELLING THE EFFECTS OF STATE AID Our focus is on extending the understanding of the effects of State aid on consumer’s surplus. The results are useful in the sense proposed by Corley and Gioa (2011): we aim to contribute for further theoretical model building but moreover proposes several practically relevant methods of calculation. As mentioned above, we concentrate on one specific form of State aid, namely subsidies to local firms. The reason for this is that most other forms of intervention can be modelled as a subsidy with equivalent effects. An important distinction has to be made between aid targeted at reducing variable costs and fixed costs reducing aid. The Commission’s approach is more in favour to fixed cost aid. This was very obvious in the Ryanair case.2 The aid granted for the opening up of new air routes was approved. However, the operational aid granting Ryan air favourable landing rights was prohibited. In fact, we observe most subsidies in the form of a lump sum. 3.1. Subsidies in monopolistic markets and perfectly competitive markets In case of monopoly, a subsidy to the monopolist will not distort competition as there are no (potential) competitors. There can be an effect when there is a potential entrant. A subsidy to the incumbent firm can refrain the other one from entering as it cannot compete anymore with the subsidised firm. A subsidy to the entrant can bring another player into the market and thus increase competition. Of course, in both cases there can be other effects, such as on consumers and government. In case of perfect competition, the competition effect depends on the design of the subsidy (Jegers and Buts, 2011). In case of a lump sum to one firm, there will normally not be an effect on the levels of price and output (as the fixed cost term disappears once the derivative of the profit function is taken). Here, the recipient firm will just cash in the subsidy, at least when one confines the analysis to be static. In a dynamic model, one might allow the subsidy to be that large that it enables the firm to invest considerably more than its competitors, in for example, production techniques or quality of the product. When this is the case, the firm will be able to produce more efficiently, will eventually decrease its costs or increase quality and will therefore gain the entire market as rational consumers will only buy from this firm. In case of a subsidy that reduces variable costs going to one of the firms, the effect will be the same: the firm will gain a competitive advantage over its rivals and will be able to monopolise the market (again assuming that consumers are rational). 3.2. Duopoly We concentrate on the simplest oligopoly, a duopoly. Decisions are taken simultaneously, and are analysed in a Bertrand game. We study three situations. The first one is the base case where no subsidy is given. As a second step, we consider the case where a subsidy is awarded to one of the duopolists. In the third situation, the same subsidies are awarded to both firms. 3.2.1. Situation 1: no subsidy We study a duopoly consisting of firm i and firm j. Both firms have the same cost function: 2 Case C76/2002. Decision published in the Official Journal JOCE L/137/2004. ABSRJ 4 (2): 131 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 They face the following demand functions: As is shown by Jegers and Buts (2011), the Bertrand market equilibrium is reached for the following prices and quantities: and The consumer’s surplus is: After substituting price and quantity and rewriting, we obtain the following consumer’s surplus for one firm: So the total consumer’s surplus in the duopoly is: 3.2.2. Situation 2: subsidy to one firm The government decides to grant a subsidy to firm i. This subsidy is assumed to change the recipient firm’s cost function as follows: Firm j does not receive this aid and thus faces the same cost function as before. ABSRJ 4 (2): 132 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 Market equilibrium is obviously not affected by the fixed cost subsidy (Jegers and Buts, 2011): (With: , and ) We calculate aggregate consumer’s surplus to compare it with the situation where no aid is granted: Or with : Compared to the first situation, consumer’s surplus has increased. The proof of this can be found in Appendix 2. Granting a variable cost subsidy to one duopolist thus increases consumer welfare judging from the increase of consumer’s surplus. Granting a fixed cost subsidy has no effect (in a static sense) on consumer welfare. 3.2.3. Situation 3: same subsidies to both firms As in situation 2, the subsidy is modelled to alter the cost function. However, at this point, both firms receive the same subsidy: Again, we derive market equilibrium in a Bertrand game and find following prices and outputs: ABSRJ 4 (2): 133 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 and We calculate consumer’s surplus for one firm: Leading to the total consumer’s surplus: Total consumer’s surplus is now higher compared to the situation where no subsidies are granted (Appendix 3). Granting the same variable cost subsidy to both duopolists thus increases consumer’s surplus. We can also compare consumer’s surplus when aid is granted to both duopolists to consumer’s surplus when aid is granted to one duopolist. This relationship depends on the parameters used. Numerical examples can be found both for which CSs,s is larger than CSs and the other way around. 4. CONCLUSION To date, there are clear gaps in the understanding of the effects of State aid. We contribute to a better comprehension of the mechanism behind subsidies by modelling its effects from a rather neglected point of view, namely consumers. As mentioned in the introduction, Martin and Strasse (2005) and Nitsche and Heidhues (2006) call for a broadening of the welfare standard used in evaluating State aid cases. More specifically, explicit attention should also be paid to the effects of an aid measure on consumer welfare. In response to this, we model the effects of subsidies, one specific but frequently used form of State aid, on consumer’s surplus, contributing on a policy level to the development of more economic analysis when examining proposed State aid measures and adding to the academic literature on the economics of State aid. We compare situations where no aid is granted to those where a subsidy is granted to one firm and where equal subsidies are given to both firms in a duopoly. Consumer’s surplus rises in both cases. This means that providing one or both firms of a duopoly with subsidies, improves consumer welfare (keeping to the assumptions of the model). Numerical examples can be used to show that the relation between consumer’s surplus when granting State aid to one or both duopolists depends on the parameters used. To get a more complete picture when assessing a proposed State aid measure, we remind that it is of course important to weigh changes in consumer’s surplus against government costs and the effects on producers. ABSRJ 4 (2): 134 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 r t f r Although being very theoretical, this paper is of high practical relevance. Over the past decade, economic analysis has gradually taken a more and more prominent role in State aid control as is clear from, for example, the State Aid Action Plan, the economic framework proposed by Friederiszick et al (2006), recent modernization initiatives and several guidelines that were issued for specific types of aid. Modelling the effects of subsidies on consumer’s surplus constitutes one more step towards a broad economic analysis towards including all stakeholders. The model we propose is quite general, but can be fitted to several types of subsidies and industries. It is possible to distinguish between different types of subsidies by changing the impact on the cost function. Specific industries can be modelled by changing the cost and demand functions. This enables a quantification of welfare changes for consumers, which can be used in an analysis next to the effect on producers and government cost. When policy makers do not explicitly wish to include the effect on consumers, the model can be used for quantification of the correction of the targeted market failure. It measures to what extent the subsidy is able to improve the market failure by looking at the impact it had on the end-user of a product or service. Future work calls for specific and more extended forms of this model to be able to more carefully construct criteria such as the de minimis rule, excluding low amounts of aid from notification. Also, several basic forms of the model could be designed to facilitate the use for those who evaluate cases as including more firms for example significantly complicates calculations. It is clear that this model thus provides a first insight into the effects of State aid on consumers with possibly high practical relevance in the future. However, more steps need to be taken in order to broaden the picture and to one day arrive at a better scientifically founded evaluation system of all State aid measures. REFERENCES Bertsch, C., Calcagno, C. & Le Quement, M. (2010). State aid and tacit collusion, European University Institute, Working paper. Blauberger, M. (2009). Of ‘good’ and ‘bad’ subsidies: European State aid control through soft and hard law, West European Politics, 32: 719-737. Buelens, C., Garnier, G. & Meiklejohn, R. (2007). The economic analysis of State aid: Some open questions, European Economy Economic papers, no. 286. Buigues, P. A. & Sekkat, K. (2011). Public subsidies to business: an international comparison, Jou nal of Industry, Compe ition and Trade, 11: 1-24. Chor, D. (2009). Subsidies for FDI: Implications from a model with heterogeneous firms, Journal of International Economics, 78: 113-125. Collie, D. (2000, a). A rationale for the WTO prohibition of export subsidies: strategic export subsidies and world welfare, Open Economies, 11: 229-245. Collie, D. (2000, b). State aid in the European Union: the prohibition of State aid in an integrated market, International Journal of Industrial Organization, 18: 867-884. Comino, S. & Manenti, F. (2005). Government policies supporting open source software for the mass market, Review o Industrial O ganization, 26: 217-240. Corley, K. G. & Gioia, D. A. (2011). Building a theory about theory building: What constitutes a theoretical contribution?, Academy of Management Review, 36: 12-32. Friederiszick, H., Röller, L. H. & Verouden, V. (2006). European State aid control: an economic framework, in Buccirossi P. (ed.), 2008, Handbook of antitrust economics, Cambridge, MIT Press, 625-671. Fumagalli, C. (2003). On the welfare effects of competition for foreign direct investments, European Economic Review, 47: 963-983. ABSRJ 4 (2): 135 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 Jegers, M. & Buts, C. (2011). State aid and between-country competition in an economic union: a microeconomic analysis in: Dumont, M. & Gayp, G. (Eds.), 2011, International business, not as usual, Antwerpen, Garant, 81-94. Katsoulakos, Y. (2005). State aid to R&D and competition: an economic assessment methodology. Online: http://www.intertic.org/Strategic%20Trade%20Papers/Katsoulakos!.pdf (Consulted: 03/05/2011). Martin, S. & Strasse, C. (2005). La politique communautaire des aides d’Etat- est-elle une politique de concurrence? Concurrences, 3: 52-59. Martin, S. & Valbonesi, P. (2008). Equilibrium State aid in integrating markets, The BE Journal of Economic Analysis and Policy, 8: 1-37. Neven, D. & Seabright, P. (1995). European industrial policy: the Airbus case, Economic Policy, 21: 1-47. Nitsche, R. & Heidhues, P. (2006). Study on the methods to analyse the impact of State aid on competition, European Economy Economic papers, no. 244. APPENDIX 1: COMPARING CONSUMER’S SURPLUS: NO AID VERSUS SUBSIDY TO ONE FIRM) We compare consumer’s surplus in a situation where no aid is granted to consumer’s surplusin a situation where a subsidy is given to firm i and not to firm j: with: , , and The proof that CSs is larger than CS consists of four steps. First, it is shown that is positive and that is negative. Then, these two terms are verified further to discover that the absolute value of the former is larger than the absolute value of the latter. So, what is added to Λ in the numerator of the first term of CSs is larger than what is deducted from Λ in the second term of CSs. Third, we prove that as well as the denominator are positive. This implies that , where CSs,ll is a lower limit of CSs for . Fourth, we compare CSs,ll with CS and establish that , from which . Step 1: Proof: and is negative as and . Therefore, is positive. ABSRJ 4 (2): 136 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 = θ and is thus positive. Therefore, is negative. Step 2: Proof: As , we have to compare with with . Substituting the parameters in leads to: The difference between the first two terms is positive as well as the difference between the last two terms as . Thus, if the difference between the first two terms is already larger than , the proof is established. This is indeed the case: as . It thus follows that what is added to Λ in the numerator of the first term of CSs is larger than what is deducted from Λ in the second term of CSs. The denominator being positive, this implies that if , which will be proved in the following step. Step 3: Proof: with , and Substituting the parameters leads, after some calculations, to: We know that as prices should be larger than the variable cost g, and for all practical purposes result I positive quantities traded. Then as Step 4:Proof: At last, we have to prove that ABSRJ 4 (2): 137 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 In order to compare the two, we substitute Λ, β and γ by their defining expressions to obtain for the left hand side: Now we can compare and The numerators are equal. It thus suffices to compare the denominators (clearly positive): and After some calculations we arrive at: , as APPENDIX 2: COMPARING CONSUMER’S SURPLUS: NO AID VERSUS THE SAME SUBSIDY TO TWO FIRMS We compare consumer’s surplus in a situation where no aid is granted with consumer’s surplus in a situation where an equal subsidy is given to both duopolists: We will establish that Proof: The difference between these two levels of consumer’s surplus stems from differneces in the numerator: . This difference is positive as . This means that if is positive, consumer’s surplus is higher in the situation a subsidy is given to both duopolists. This is indeed the case (Appendix 1, step3). ABSRJ 4 (2): 138 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 ABSRJ 4 (2): 139 ISSN 1855-931X GENDER BIAS IN PROMOTION: IS IT REAL? Paulo Lopes Henriques* Technical University of Lisbon - ISEG Portugal lopeshen@doc.iseg.utl.pt Carla Curado Technical University of Lisbon - ISEG Portugal ccurado@iseg.utl.pt Abstract The present study uses a nationwide longitudinal database to analyze the Portuguese workforce searching for gender differences in promotion. The database presents longitudinal data from employees in eight different professions across the country. The research examines individual dimensions such as age, tenure and education looking for their impact over promotion and possible cumulative gender effects. Results seem to indicate considerable gender dissimilarities regarding promotion rates, consistent with previous literature, but also reports differences, namely by questioning the glass escalator effect, the impact of tenure and the influence of education over promotion. The paper contributes to the body of knowledge on gender issues and career related impacts. Keywords: Gender studies; Professions; Promotion, Field study Topic Groups: Gender, diversity and social issues; Human resource management and career development JEL Classification: M51, J16, M50 INTRODUCTION Due to relative scarcity of women in top management positions it might be questioned if gender affects progression in firms, so it’s appealing to study gender influence in professional promotion (Steinberg, Haignere, Chertos 1990; Lyness and Heilman 2006) and the barriers women have to face along their careers (Lyness and Thompson 2000; Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 Wellington, Kropft, and Gerkovich 2003). The interest concerning the existence of gender discrimination related to professional promotion has motivated studies in several countries (Judge et al. 1995; Stephen 1990; Cobb-Clark and Dunlop 1999; Cabral, Ferber and Green 1981; Lewis 1986; Olson and Becker 1983; Dencker 2008; Metz and Harzing 2009; Hoobler, Wayne and Lemmon 2009). The shorter rate of women progressing in organizations is frequently associated with the occupational segregation in which women usually occupy the lowest management levels at firms, basically being held up to get to higher levels in the hierarchy and better rewarded posts (Adams 2007; Agars 2004, Cassirer and Reskin, 2000; Morrison and von Glinow 1990; Maume 1999; Kirchmeyer 1998; Hymowitz 2004; Lyness and Thompson 2000; Tharenou 1999; Spencer and Stuart 2006). Women who desire to go up in the hierarchy need to adopt a male role model, or following male standardized behaviors, in order to guarantee the possibility to reach an upper level in the organization (Still 1994). Women feel there are barriers holding them from achieving top management levels and as a result being misrepresented in command positions (Maume 2004; Powell & Butterfield 1994). According to Peiss (1998) only in four business sectors women seem to exceed such barrier; the consumer marketing advertising, the cosmetic industry, the small local businesses and the education, being that in the educational area the post of school director tends to be occupied by a woman. The scarcity of gender studies addressing promotion issues in Portugal and the relevancy of the issue in political and entrepreneurial debates present an opportunity to fill in a research gap. In addition, Portugal being a Latin cultural country where traditionally women are not seen as leaders or considered primarily for promotion, serves as an adequate setting for such study. The paper addresses only formal promotion sequences not exploring any type of effect on payment increase related to each promotion. THEORY The European and Portuguese Landscape In 2005 women represented 51.6 percent of the total Portuguese population. In the period from 1998 to 2006 women increased their participation in the work force passing from 51,8 percent to 55,8 percent, while men participation remained around 69 percent (INE 2005). Gender equality in all areas of life is a fundamental right and a value proclaimed by the European Union enshrined in its policy since the Treaty of Rome in 1957. Nevertheless, the European Commission’s 2009 Report on Equality between Women and Men (EC 2009 REWM) indicates that the Central Banks of all member states were led by a male governor. The same European Commission’s 2007 Report indicated that, on average, the highest decision- making bodies of EU central banks include five men for every woman. At European level, all three of the financial institutions (European Central Bank, European Investment Bank and European Investment Fund) are led by men and women account only for 16 percent of the highest decision-making bodies of these institutions. Given this background, the Portuguese reality in EU regarding women’s head of boards is controversial; in a study (Community Labour Force Survey 2007) covering 15 countries none of the Portuguese companies covered in the sample were led by a woman. In the same study, regarding to board membership, women account for less than 5 percent. On the other hand, according to Portuguese domestic statistics (INE 2011), little over half (55,3 percent) of firms have women participating in management jobs and 30,1 percent of management jobs are held by women in Portugal. The same statistics report top management figures, showing that 12 percent of board heads are women. Regarding gender diversity in the Portuguese firms’ management teams’ composition is as follows: 45 percent are mixed, 45 percent have exclusively male members and 10 percent have exclusively female members. Given such conflicting reports, it ABSRJ 4 (2): 140 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 seems critical to further develop research and cumulate evidence in order to fill the gap exposed. The paper addresses the topic of women participating in the work force by exploring the phenomenon of promotion at firms. Bases of promotion Promotion stands for an upward hierarchical movement from one position to another, in which the employee ascends to a higher level of responsibility and complexity of duties and obligations receiving as counterpart a more rewarding set of benefits. Promotion involves much more (Seibert, Kraimer & Liden 2001) it also includes a change in the daily work. In the past, women’s promotions were not a synonym of increased responsibility and a matching higher hierarchic level as it happened with the men (Stewart and Gudykunst 1982). According to literature, studies presenting similar proportions of both gender promotions show that the raise in responsibility and hierarchic level differs among genders (Eddleston 2004). Extent literature support that women present lower promotion rates (Judge et al. 1995; Stephen 1990; Cobb-Clark and Dunlop 1999; Cabral, Ferber and Green 1981; Lewis 1986; Olson and Becker 1983; Dencker 2008; Metz and Harzing 2009; Hoobler, Wayne and Lemmon 2009) than men in similar situations - which means men under the same circumstances and chances are more likely to receive a promotion to progress in the career (Cabral, Ferber and Green 1981; Cannings 1988; Cobb-Clark 2001; McCue 1996; Olson and Becker 1983; Ransom and Oaxaca 2005; Spurr 1990). Although the main trend is strongly sustained in literature, there is also contrary evidence supporting research studies that present men’s promotion rate of being lower than women’s (Barnett, Baron and Stuart 2000; Gerhart and Milkovich 1989; Spilerman and Petersen 1999; Stewart and Gudykundt 1982). Kaestner (1994) study shows that women in higher levels in the hierarchy have similar and sometimes even superior promotion rates than men, alongside with reports of similar promotion rates among different genders and studies that find no significant differences in men’s and women’s promotion’s rates (Giulano, Levine and Leonard 2005, Hartmann 1987; Lewis 1986; Paulin and Mellor 1996; Powell and Butterfield 1994; Seibert et. 2001; Sheridan, Slocum, Buddha, and Thompson 1990). Carol and Heaton (2003) discloses that the career’s development differ between genders; since men receive more internal promotions than women and the latter tend to progress in the career moving to another organization. Considering Lazear and Rosen (1990) studies, men and women receive equal treatment at the work place but preferential treatment is given to men when referring to promotion. Women have lower probabilities of getting a promotion for better rewarded positions when compared to men with similar individual characteristics. Firms prefer to promote men because they assume men will remain in the firm longer than women. In spite of these results little evidence exists regarding gender differences in capabilities and skills (Hind and Baruch 1997). Considering previous literature and the gap regarding Portuguese evidence on promotion, the study addresses visible aspects of the phenomenon at nationwide scale. Thus, the following hypotheses test the gender effect on promotions in Portugal: Hypothesis 1 – Male promotion rates are similar to female promotion rates When men do women’s work a phenomenon might occur: the Glass Escalator (Williams, 1995) traducing in men consistently being promoted faster over women, even when they are numerically a minority (Budig 2002; Taylor 2010; Williams 1992; 1995). Considering that gender segregation in promotion seams to create different patterns of evolution for men and women (Henson and Rogers 2001; Charles and Grusky 2004) and having present the previous notion about feminine professions (Cassier & Reskin, 2000) the following hypothesis emerge: ABSRJ 4 (2): 141 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 Hypothesis 2 – Regarding feminine professions men’s promotion rates are higher than women’s Some personal effort promotes knowledge, abilities and credibility for those who want to assume top management positions (Tharenou et al. 1994; Spurr 1990; Lyness and Heilman 2006; Metz and Harzing 2009), but evidence seems to suggest that there is a gender bias. Considering literature reports minor top management occupancy levels by women, in spite of women presenting higher education levels than men (Fagenson and Jackson 1994). Melamed (1995) findings support that skill certification benefits more the women’s careers than the men’s. In an opposite way Tharenou et al. (1994) find that skill certification benefits more men’s than women’s careers. Thus, it is hypothesized: Hypothesis 3: Educational levels have a higher impact on promoted women´s than men´s Tenure is also considered critical for human capital value enlarging the abilities’ span of individuals (Nordhaug 1993) influencing promotion probabilities. Long term at the firm is seen as a sign of experience, knowledge and productivity (Chase and Aquiliano 1981), being a criterion to consider in the promotion decision making. As firms prefer to promote employees who present greater probability to stay in the firm, it is reasonable that they promote the most tenured. According to Konrad and Cannings (1997) and Kirchmeyer (2002) the effect caused by tenure differs between genders; it contributes positively for career progression in the case of men and negatively for women. Thus a two folded hypothesis arises: Hypothesis 4a: Tenure impacts positively on men’s promotion Hypothesis 4b: Tenure impacts negativity on women’s promotion METHODS The paper uses a nationwide database (Ministry of the Work and Social Solidarity) that gathers information from all the firms established in Portugal, between the years 2002 to 2005. Participation is mandatory; once a year firms are called to contribute, allowing the Ministry to gather information on employees’ gender; state profession’s classification; tenure status; age; latest promotion date; education. Data analysis was run after it has been cleaned from all its inconsistencies; incomplete registers and registers for which it was not possible to guarantee beyond any doubt its traceability over the period covered by the study. Such procedure resulted in the elimination of over 30.000 registers from the original database when considering the period covered. The study considers a set of 8 professions selected as the ones where gender segregation in promotion is expected to be more visible (Cassirer and Reskin 2000; Morrison and von Gilnow 1990; Maume 1999; Kirchmeyer 1998). Four of the eight professions in the study might be considered as feminine professions - women’s professions according to Wingfield (2009). Professions P22, P23, P24 and P41 that present higher rates of employed women against men, these professions are associated to lower levels of authority (based on span of control analysis) consistent with feminine professions’ profile according to literature. Table 1: Employee by profession and gender at the beginning of the period (2002) Professions Male Female Total % P11 - Public administration top and middle management 336 194 530 0,40% P12 - Top Firm Managers 32.213 10.265 42.478 30,40% P13 - Small firm managers 43.751 17.100 60.851 43,50% P21 - Exact sciences specialists 6.195 1.892 8.087 5,80% ABSRJ 4 (2): 142 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 Source: MTSS, 2008 P 22 - Health specialists 1.448 2.913 4.361 3,10% P23 - Teachers and professors 1.560 2.647 4.207 3,00% P24 - Other Sciences specialists 5.280 6.078 11.358 8,10% P41 - Administrative personnel 1.371 6.631 8.002 5,70% Total 92.154 47.720 139.874 Average age (years) Average tenure (years) School education (years) 43 8 10 40 8 12 42 8 11 Considering the total 139.874 observations over the period, 34.12 percent respect to women, the total average age of employees is 42 years old. Employees covered in the study have on average 11 years of education at school and an average tenure of 8 years at the beginning of the period covered by the study. For promotion rates see table 2, For promotion each employees has been track throughout the periods studied independently the firm where he or she were working for, and if a change in the rank position was reported a promotion was counted. Table 2: Employee promotions (2002-2005) Source: MTSS, 2008 Period Number of Employees promoted % Employees promoted % Male % Female 2002-2003 17,738 12.7% 63.3% 36.7% 2003-2004 14,997 10.7% 62.3% 37.7% 2004-2005 594 9% 62.1% 37.9% FINDINGS When analyzing promotions over the considered period; 2002 to 2003, 2003 to 2004 and 2004 to 2005, results are illustrative (Table 3). Regarding Public administration, top and middle management positions (P11) the equality hypothesis is not rejected over the three periods of promotion considered, meaning it can be assumed to exist no gender bias. Addressing top firm managers (P12), small firm managers (P13) and to exact sciences specialists (P21), in the three periods of promotion considered the equality hypothesis 1 is rejected, meaning it can be assumed to exist gender bias, visible in a highest promotion rate of men over women regarding these jobs. Hypothesis 1 is also rejected when considering health specialists (P22), teachers and professors (P23), other sciences specialists (P24) and administrative personnel (P41), but in this case results show a lower promotion rate of men compared to women, generating a contrary gender bias from (P12; P13; P21). Results lead to the partial rejection of the hypothesis 1 on the majority of professions, apart from Public administration, top and middle management positions (P11) (Table 3). ABSRJ 4 (2): 143 Advances in Business-Related Scientific Research Journal (ABSRJ) Volume 4 (2013), Number 2 Table 3: Statistical test results for equality of promotion rates between genders Test for gender equality of promotion Test for men’s promotion rates higher than women’s Profession n p=0,5 p-value p