Managerial Auditing Journal, Volume 20, Number 4, 2005

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ISSN 0268-6902

Volume 20 Number 4 2005

Managerial Auditing Journal Improving organisational performance Editor: Gerald Vinten

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Managerial Auditing Journal

ISSN 0268-6902 Volume 20 Number 4 2005

Improving organisational performance Editor Gerald Vinten

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Editorial advisory board _________________________

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Costing in new enterprise environment: a challenge for managerial accounting researchers and practitioners Krishan M. Gupta and A. Gunasekaran ___________________________

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Statistical thinking and its role for industrial engineers and managers in the 21st century Miltiadis Makrymichalos, Jiju Antony, Frenie Antony and Maneesh Kumar ______________________________________________

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Quality audits: their status, prowess and future focus M. Rajendran and S.R. Devadasan _______________________________

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Interactive organizational commitment and hardiness in public accountants’ turnover Daniel W. Law _______________________________________________

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Implementing integration of ISO 9001 and ISO 14001 for construction S.X. Zeng, P. Tian and Jonathan J. Shi ____________________________

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CONTENTS

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E-commerce impact: emerging technology – electronic auditing Junaid M. Shaikh _____________________________________________

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Individual learning and organization culture in learning organizations: Five star hotels in Antalya region of Turkey ¨ zdemir _____________________________ A. Akin Aksu and Bahattin O

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Managerial Auditing Journal Vol. 20 No. 4, 2005 p. 336 # Emerald Group Publishing Limited 0268-6902

EDITORIAL ADVISORY BOARD

James Bierstaker 577 Winston Way, Berwyn, PA 19312 Michael P. Cangemi Editor, IS Audit & Control Journal, Illinois, USA Dr Stanley Y. Chang Associate Professor of Accountancy, ASU West, Phoenix, Arizona, USA Jianmin Cui National Audit Office of PRC, China C.A. Grim Chairman, Atsui Solutions Limited, UK Dr George Holmes Professor Keith A. Houghton University of Melbourne, Australia Professor William Keogh School of Management, Heriot-Watt University, Edinburgh, UK Gerard E. McElwee University of Humberside, UK Professor Charles Margerison International Management Centres, UK

Dr John A. Mitchell Potters Bar, Herts, UK Dr Samuel M. Natale Adelphi University, School of Business, NY, USA Dr Chris Pong Management School and Economics, The University of Edinburgh, Edinburgh, UK Tudor Rickards Professor of Creativity and Change Management, Manchester Business School, Booth Street West, Manchester, UK Professor Malcolm Smith Dean (Research), Division of Business and Enterprise, University of South Australia, Adelaide, Australia Dr Ruth Taplin Centre for Japanese and East Asian Studies, Pinner, UK Michael Tayles Professor of Accounting and Finance, Centre for International Accounting and Finance Research, University of Hull, Hull, UK

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Costing in new enterprise environment A challenge for managerial accounting researchers and practitioners Krishan M. Gupta and A. Gunasekaran

Costing in new enterprise environment 337 Revised April 2004

University of Massachusetts-Dartmouth, North Dartmouth, Massachusetts, USA Abstract Purpose – Faced with new wealth creation paradigm, triggered by technology and relentless globalization of markets, increasing number of companies are becoming knowledge-based enterprises. This paper aims to discuss the change in enterprise environment; evolution of performance and cost measures; and the challenges for managerial accounting researchers and practitioners in developing value-based costing and performance measurement systems (PMS). Design/methodology/approach – A conceptual discussion and approach are taken. Findings – Internet and e-commerce have changed forever the way companies conduct their businesses. Virtual enterprise and efficient supply chain management systems will shape the future of these enterprises. Organizations are trying to become agile enterprises with the help of strategic alliances of firms and integration using information technologies. Traditional performance and cost measures are no longer suitable for developing and managing enterprises in the so-called new environment. In order to remain relevant and to add value, cost and performance measures must be designed and systematically evaluated to reduce the often-unnoticed mismatch between strategic goals and operational tactics. Research limitations/implications – Suggestions are presented for future research directions in managerial accounting areas that would address the requirements of new economy enterprises. Originality/value – Alerts managerial accounting researchers and practitioners to develop new costing and PMS taking into account the new enterprise environment. Keywords Accounting, Business environment, Accounting research Paper type Research paper

1. Introduction Accounting has become the most intellectually challenging area in the field of management, and the most turbulent one. All these new accounting theories aim at turning the accounting data into information for management decision-making. Peter Drucker

Accounting has always been used for decision-making, resource allocation, and operational control (Johnson and Kaplan, 1987). From the times of the Egyptian Pharaohs, to the European sea voyages to the East Indies, and the rapid industrialization of the late 19th century, accounting information was the managerial tool of choice for A preliminary version of this paper was presented at the Tenth Annual Conference of the American Society of Business and Behavioral Sciences, Las Vegas, 20-24 February 2003. The authors wish to thank the conference participants for their constructive and valuable suggestions.

Managerial Auditing Journal Vol. 20 No. 4, 2005 pp. 337-353 q Emerald Group Publishing Limited 0268-6902 DOI 10.1108/02686900510592034

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operational control. However, the external financial reporting aspects of accounting information systems became dominant and overshadowed its managerial role in the early 20th century. The accounting profession blossomed in size, scope, and stature along with its role as the state sanctioned sole purveyors of attested (reliable) financial information so necessary for the smooth functioning of our capital markets. However, during the last 20 years, the value and profitability of this attest function declined due to the evolution of alternate sources of relevant information, globalization, technology, and competitive forces (Elliott, 1992). At the same time, driven by the pressing need to provide relevant and timely information for strategic and operational control, there has been a systemic shift and greater emphasis in the role of accounting information as an increasingly important tool for management control (Drucker, 1992; Johnson and Kaplan, 1987). There is relentless pressure to make accounting information more meaningful for operational decisions and retain its relevance in the present day economy. The current era of intense global competition is compelling all enterprises to aim for a renewed commitment toward excellence and creating value for clients. Increased attention to the business processes, quality of products and services, level of inventories, management of value chain, and improvement of workforce policies, is providing the much-required edge to these enterprises to help them become world-class companies. In advanced manufacturing or service environments, these functions become even more critical and sometimes take a life of their own since it is difficult to directly observe all the value creating activities under one roof or single management control as they are mostly outsourced as well as distributed. While there are many areas in managerial accounting being redefined due to the paradigm shift in manufacturing and service enterprises, performance measurement and costing require utmost and immediate attention. Accordingly, this paper is focused on these two critical issues in new enterprises. While singular cost-based performance measures are not sufficient to efficiently manage today’s complex enterprises operating in even more complex environments, even the current fad to adapt multiple non-financial measures may not be appropriate unless they are aligned with the organization’s strategic mission. On the other hand, such “misaligned” performance measures are dysfunctional and cause greater strain on the organization’s managerial resources. One of the critical roles of managerial accounting is to identify and eliminate (or at least try to minimize) non-value adding activities throughout the value-chain. The ultimate goal is to promote value-adding activities. The mismatch between strategies and tactics, largely unintentional, with the overall goals and objectives of the organization trigger most of the non-value adding activities in operations. Non-value adding activities lead to higher production costs, inefficiencies, and hence the loss of profitability. Therefore, to remain relevant and to create value, performance measurement systems (PMS) must attempt to minimize this mismatch. Any misalignment at strategic levels gets amplified into a much larger mismatch of the goals at tactical operational levels. Neely et al. (1995) present a comprehensive literature survey and research agenda for PMS design. Sriram (1995) discusses the accounting information system for flexible manufacturing systems. These reviews provide a strong basis for the change in performance measures and costing system with the objective of meeting the requirements of modern organizations.

However, they did not address some of the specific issues related to costing and performance measures in virtual enterprise, electronic enterprise, and supply chain environments. Traditional management control systems like budgetary controls, pricing, and make or buy decisions, are embedded in financial accounting and costing. However, purely cost-based operational control measures or other similar measures are no longer relevant, especially in the environment surrounding the enterprises in the new economy, since such measures are reactive and lagging indicators. While the performance measures that are linked to the strategic business process may be more difficult to establish and measure, they are much more relevant. Operational measures and controls that are focused on identifying and solving problems in aligning the tactics with strategy are far more meaningful than the traditional performance measures. However, we are not suggesting that the historical cost-based measures are not needed. We still need these lagging indicators for other reasons. For example, historical cost-based measures may still be needed to validate contracts (debt) and to provide a benchmark for long term as well as cross-sectional comparisons. Successful enterprises must remain competitive and create value for their stakeholders; otherwise they risk the danger of becoming extinct. The wealth creating and wealth accumulating prescriptions of the industrial era of the last 200 years do not hold good anymore (Elliott, 1986, 1992). Not withstanding the well-deserved natural evaporation of “irrational exuberance” bubble, and the current downturn in the economy, the business model of the 21st century remains to be drastically different from the business model of the past and is still very much valid and viable. For example, we have moved from mass-production of goods and services (“one-size-fits-all”) to mass-customization aimed at serving the needs of the smallest niche expeditiously and in a cost-efficient manner. Technology gives us the tools to analyze and deliver client satisfaction at the micro-level in the most cost-effective manner. Technology is both the driver and facilitator of this trend. Despite the dot.com-bust, the technological and global competitive forces are here to stay. In short, there is no looking back or turning back of the clock on the technological frontiers. The pressures of increasingly globalized competition dictate that the individual customer receives the most value-added service in the shortest possible time frame. Doing “more with less” and “24/7” are not mere popular phrases or passing fads, but they are here to stay with us as the business models of 21st century and beyond. The recent economic data on the US economy clearly confirms the secular trend of increasing productivity and the effects of continued pressures to ratchet up the efficiency (US Bureau of Labor Statistics, 2002). In short, the current economic downturn has to do more with the burning up of the overcapacity built during the dot.com rush of 1990s rather than the negation of the underlying technology itself. Combined pressures of rising competition, globalization, and advances in technology have coalesced together to force the enterprises all over the world to invest in more effective and extensive managerial accounting systems. Successful fusion and management of accounting and information systems is a major challenge for the managers of the 21st century (Drucker, 1992). For example, Lockamy and Smith (2000) propose target costing as a means to management of supply chains.

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Managerial accounting, while not formally named as managerial, has always been charged with the responsibility to provide more accurate and relevant cost and other information to the managers for making decisions. Accounting information has been used for making strategic, tactical, and operational decisions in large organizations much before the mandatory financial accounting became synonymous with accounting during the last century (Johnson and Kaplan, 1987). The major drawback of traditional financial accounting-based information has been its rear-view approach to performance measurement. Therefore, a more proactive approach toward performance measurement is required. It has to be forward looking and guide the internal business processes for achieving the goals of the enterprise. The current approach is passive and reactive which is more concerned with the causes of past performance rather than looking forward to control and guide the internal business processes in the right direction. We envision a proactive management control tool – Measurement Alignment Matrix, for aligning the operations with the goals and objectives by identifying and emphasizing performance measures that bring in line the strategies and tactics with the goals and objectives of the organization. In short, performance measures will add significant value if they are aligned with the strategic, tactical, and operational goals of the enterprise. Value is created when strategy is successfully translated into organization-wide actions that are aligned with the strategy. Effective and value adding PMS become the crucial link between strategy and execution. In this paper, we discuss the research on performance measures and cost management in organizations in new economy that include virtual enterprise, supply chain management (SCM), and e-commerce environments to successfully compete in a global market. For instance, investing in knowledge capital and information technology plays an important role in developing organizational competitiveness in the 21st century. Therefore, understanding the importance of managing and controlling costs, and performance in new enterprise to compete in the global market has become a primary challenge. This paper sets a new direction for research in cost accounting for providing accurate information to make right decisions in the new enterprise environment of the 21st century. The organization of the paper is: Section 1 introduces the scope for new costing system and performance measures in the 21st century operations environment. Section 2 deals with the background for the research. Suggestions for new costing systems and performance measures in virtual and e-commerce environments are discussed in Section 3. The challenges for managerial accounting researchers and practitioners are presented in Section 4. The conclusions and future research directions are presented in Section 5. 2. Background for the research According to Johnson and Kaplan (1987), and various other researchers, the managerial accounting systems in the nineteenth century were well developed for the needs of the times as early as the 1850s. It is only the excessive focus on (state) mandated financial reporting of the last 70 years that distracted the accountants from channeling their efforts to develop suitable managerial accounting systems for the evolving business models. For example, Fleischman and Tyson (1997), revisit the accounting systems prevailing in the Lowell Textile Mills and the Springfield Armory before the 1850s.

Their archival investigation reveals that the operations of these large enterprises “necessitated the use of detailed and comprehensive accounting systems”. These management control systems were more than adequate for their times and provided the much needed coordination, control, and “discipline” for large enterprises. The role of accountant and accounting information was pivotal to operational control and decision-making. However, along with the rise in preeminence of external financial reporting, the managerial role of accounting started to take a backseat. Drickhamer (2002) analyzes a recent KPMG survey of 143 upper executives from industry and government. Most of these, users of the information, report that the current PMS, while still somewhat effective, are not satisfactory. The existing performance measures based on financial, operational, and functional efficiency are inadequate for the new business models. These measures are lagging and reactive and lack predictive value. The study finds that successful measures are balanced and have strong links between strategic and operational measures. Measurement systems fail when they measure what is easy to measure rather than what is relevant, having too many measures, and they are not linked to company goals. Strategic performance indicators must track the marketplace, monitor resource management, and look to the future. While there were no significant improvements in managerial accounting practice from 1930s to 1980s (Johnson and Kaplan, 1987), the last two decades have seen a renewed interest to push the frontiers of knowledge in this area. “The old accounting system, which tells us the cost of material and labor, is not applicable. Even in manufacturing, perhaps three-fourth of the value added derives from knowledge”. The emphasis has been to include non-financial measures in the valuation and performance measurement models and to find control mechanisms for the new economy enterprises and how to make them more responsive to the global and fleeting opportunities. Notable examples of these innovations in this area include, activity-based costing (ABC), activity-based management (ABM), agile manufacturing (AM), balanced score card (BSC), just in time inventory (JIT), SCM, total quality management (TQM), and theory of constraints (TOC). However, most of these recent managerial accounting practice developments were for the traditional manufacturing organizations and may have to be significantly modified or even replaced with new techniques to take into consideration the realities of business models for new enterprise environments of the 21st century. A brief review of evolution of performance measures during the last 100 years clearly highlights the move toward a more holistic approach toward performance measurement. Singular financial cost-based performance measures were more than adequate for the needs of the management of pre-industrial and early industrial stable production systems. The evolution of larger and more complex organizations driven by the necessity to take advantage of economies of scale increased the role of management control systems. The control systems of this era, e.g. the DuPont system, were solely based on financial cost and reporting models. The last 25 years have witnessed a crying need for a more holistic approach for performance measurements covering all aspects and functions of the organization. Financial and non-financial performance measures covering different functional areas have been discussed in the literature. However, most of these measures are still grounded in traditional enterprises. Further, it is quite difficult to relate these measures to the business goals and objectives of the

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enterprise. Most of the field studies report that there is over-measurement with a tendency to measure what can be readily measured rather than what is relevant (Birchfield, 2002). Measurements should be able to influence the business process and add value by relating to the goals of the enterprise. A summary of the evolution of performance measures over the last 100 years is presented in Table I. Pre-20th century industrial era performance measures were solely driven by cost as measured by the accounting systems. Historical cost has always been and will always remain an important measurement of enterprise performance. Traditionally, costing has served several useful purposes, as follows: (1) control of activities, products and services, and the economic units; (2) financial reporting of assets (inventory) to the outside world; (3) marketing decisions such as product-mix and pricing; (4) benchmarking the performance; and (5) motivation and rewards for the employees and managers. Fredrick Taylor and his colleagues Frank and Lillian Gilbreath pioneered early 1900s performance measures. They focused on analyzing the core processes and aimed at developing optimal algorithms for activities by using time and motion studies. The French process engineers at the same time evolved the concept of “dashboard” to provide an easy read on the state of affairs of the organization in different functional areas. Pre-war period of 1930s-1940s witnessed the ideas of W. Edward Deming and Walter Shewhart that focused on operational processes. It was quite a while before Deming’s ideas crystallized into TQM and gained acceptance in Japan before United States. Financial accounting models dominated the post-war period of 1960s. The global competitive forces of 1990s forced companies to look inwards to improve quality and add value to the customer in a short order. Kaplan and Norton championed the BSC approach for performance measurement. The model emphasized the need to balance the financial perspective with the customer, internal business process, and learning and growth issues.

Table I. Evolution of performance measures

Time period

Measures

Pre-twentieth century

Mostly financial Core processes Dashboard Operational processes Employee performance Human resource, accounting Scenario planning Balanced scorecard Economic value added Intellectual capital approaches

1964 and onwards 1970 onwards 1990s 1994 1997

Source: Based on Achieving Measurable Performance Improvement in a Changing World, KPMG LLP in Drickhamer (2002)

The last decade witnessed a frantic search for valuation models that would include long-term considerations (EVA) as opposed to the short-term (ROI) measures. At the same time, researchers and practitioners have been trying to incorporate the human capital in valuation models. 2.1 Evolution of cost measures As already discussed in preceding pages, historical cost has always served as a very useful measure of performance, control, and critical managerial decisions viz., make or buy, sales mix, etc. Starting with very simple concept of average cost (total cost/output), various complex cost models have been used. Table II provides a summary of evolution of different cost measures over time. Period

Approach

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Model

Pre-industrial and early period Average cost Until 1940s

1940s-1980s

1940s1940s1980s1990s-

1990s

1990s 2000 onwards

Total cost/total output Selling price ¼ cost plus Total manufacturing cost focus Direct material, direct labor, manufacturing overhead, other administrative costs. Selling price ¼ cost plus (This model based on full/absorption costing is to used for reporting costs under GAAP) Direct costing, fixed vs. variable Direct costs, variable manufacturing and other overheads, fixed costs Selling price ¼ cost plus Opportunity costing Focuses on the missed opportunity costs for managerial decision-making Transfer pricing Focuses on transfer of goods and services within the organization for cost allocation purposes ABC Direct costs, activity based driven costs, fixed costs Selling price ¼ cost plus Market driven Target cost ¼ market selling price 2 desired profit Costs have to remain within the target Product life cycle Life cycle costing. Cost has a long-term horizon and includes all costs from inception to its end Selling price ¼ cost plus JIT Throughput costing. Some inventory accounts are merged Selling price ¼ cost plus Value-based costing A blend of market driven and life cycle approach but is focused on highlighting the value creation

Source: Partially based on Ferrara (1995)

Table II. Evolution of cost measures

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Costing exercise is an exercise in approximation. It is both a science as well art. While it is fairly easy to isolate, track, and trace “direct costs” it is very difficult to determine the precise amount of “indirect costs” attributable to a cost object (product, service, department, etc.). Therefore, all cost models involve some degree of approximation. Trying to find the “true” and “objective” cost of a particular cost object (product, service, customer, transaction, process, responsibility center, etc.) is the “holy grail” of managerial accounting. Average cost (Pre-industrial and early period). Total cost divided by the total output. This model was very effective and efficient in determining the cost in single product and stable environments of early and pre-industrial era. For example, (average) cost of transporting one ton of material over one mile. Such measures were also effective for various managerial decisions as well as financial reporting due to the nature of the business – single stable product. Total manufacturing cost (Until 1940s). Also known as the absorption or full costing approach. The total manufacturing cost is broken down into direct (material and labor) costs and indirect (manufacturing overheads). The model approximates the indirect costs by estimating beforehand and averaging them over single or multiple cost pools. The cost pools could be department based or company wide. The predetermined overhead costs are applied uniformly based on some cost driver (usually direct labor, material, or labor or machine hours). This traditional volume-based approach is quite robust for stable production environments. This traditional volume-based approach is quite valid for facilities producing products with less diversity and with stable production runs – a model hardly suitable for advanced new economy enterprises. Application of such models leads to serious cost distortions and quite often results in serious dysfunctional or counterproductive behavior within the enterprise. The absorption (full) cost model is used for reporting the inventory and cost of goods sold in financial statements, prepared under the Generally Accepted Accounting Principles (GAAP). Direct costing (1940s-1980s). Also known as the variable or marginal costing approach. This approach attempts to isolate only the direct or marginal costs. This model is extremely useful for various “contribution-margin” based managerial decisions with in the organization. This model based on classification of costs as fixed or variable, ties well with the cost volume profit (CVP) analysis for decision-making. However, this approach has severe limitations, especially when applied for long-run decisions. Opportunity costing (1940s-). It focuses on the often-omitted cost of the second best alternative that must be considered for managerial decisions, especially for transfers within the organization and make or buy decisions. The opportunity cost model helps managers in specifically identifying the cost of missed opportunities. The approach highlights certain behavioral aspects of cost decisions. For example, we tend to ignore the opportunity costs and on the other hand remain fixated on sunk costs, which have no bearing on the future costs or remain constant amongst different alternatives. Transfer pricing (1940s-). Transfer price models assist in rational allocation of shared costs when goods and services are exchanged between independent segments within a decentralized organization. The approach draws upon the direct cost and

opportunity cost models. Transfer pricing mechanism can also be abused by shifting profits in case of organizations operating under differing tax jurisdictions. Activity-based costing (1980s-). ABC focuses on identifying the cost of major activities and allocating them to the cost object based on their usage of a particular activity. ABC is considered a major innovation in managerial accounting during the last 20 years. Essentially, it attempts to convert most overhead (indirect) costs into direct costs – directly traceable to the cost object. However, the ABC model while a definite improvement over the traditional volume-based approach still retains the approximate and subjective nature of cost measurement. ABC focuses on developing different cost pools for different activities. It attempts to reduce cost measurement distortions caused by the traditional single cost driver volume based approach when costing products/services that use the enterprise resources in differing proportions. The approach tries to reduce the weight of “indirect overheads” that cannot be allocated to smaller sized cost pools. Application of ABC is, however, is not that easy; it requires significant resources of the enterprise, commitment from the top management, and sound judgment by the ABC team. ABM grew out of ABC to guide the strategic management of an enterprise based on the insights achieved during the implementation of ABC. However, over-emphasis of cost aspects of operations can distract the enterprise from its primary goals and objectives and neglect of customer focus (Johnson, 1992). Market based (Target) costing (1990s-). This approach is a direct reflection of the relentless forces of competition driven by the globalization of capital and economies facilitated by technology. Market economics sets the price and a target for the cost is set beforehand and the engineers and designers strive to fit the product within the target (budgeted) cost. Product life cycle costing (1990s-). This approach takes into consideration the short product life and fleeting opportunities in the global economy. This approach is in direct contrast with the absorption (full) cost-based standard costs developed for the stable production environments of yester years. The total life cycle costs (relatively high costs in the initial phase) have to be recouped over the short product life. Throughput (JIT) costing (1990s-). JIT aims to reduce the inventory costs by minimizing the inventory levels. In such an environment, the traditional inventory classifications of raw materials, work-in-process, and finished goods inventories are no longer of much significance. Thus, it would be more efficient to merge some inventory classifications and respective accounts without foregoing the accuracy of the cost models. These recent developments in the area of cost management (market driven costs, life cycle cost, JIT costs, etc.) have been primarily driven by the global market competition, which tends to dictate the output prices and compels the enterprises to focus on costs and reduce them continuously (Kaizen Costing). However, all these approaches of cost-based performance measurement do not adequately focus on the value adding aspect of a product or service. Barker (1995), Johnson (1992), and others have highlighted the pitfall of relying too heavily on cost-based financial performance measures and decision-making. Similar modeling for projects and investment appraisal can be very shortsighted. The traditional cost models have mostly been driven by financial reporting considerations or have been fixated on a specific product or service or function within

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the organization. This approach is shortsighted and misses the whole point for the existence of an enterprise – to create value for its stakeholders. The authors of this paper suggest a very different approach for costing and performance measurement that tries to focus on the value being created by the product or the service. We strongly advocate using performance measures that would reduce mismatch of alignment between goals, strategy, and operational tactics. The performance measures should help streamline the tactical and operational implementation of the strategy and not be fixated on financial costs alone. The cost and performance measures in “New Enterprises” have to focus on delivering value rather than merely trying to establish the historical cost. The value chain for such enterprises (procurement to distribution to charge-backs) and may be changing all the time – thus the necessity to take a more holistic approach. In the next section, we examine some distinguishing features of such enterprises and their implications on cost and performance measures. 3. Cost accounting and performance measures in new enterprise In this section, we discuss the differences between traditional enterprise and virtual enterprise environments of the 21st century. The main objective of this summary comparison is to analyze the evolution of manufacturing or service enterprises over the years and in turn identify the necessary characteristics for new performance and cost measurement systems. Moreover, this short analysis would also assist in identifying the challenges for managerial accounting researchers and practitioners in developing new costing and PMS. We consider that the following changes define the environment for the new enterprises: (1) distributed operations environment; (2) global outsourcing; (3) strategic alliances based on core competencies; (4) information technology for an integrated SCM; (5) implications of enterprise resource planning systems on supply chain integration; and (6) e-commerce and logistics value chain. 3.1 Comparison of charactersitics between traditional and virtual enterprises Table III compares some of the characteristics of traditional and virtual enterprise environments. Virtual enterprises seek to harness the opportunities offered by the ever-improving technology, access to certain niches in input-output markets, and their expertise in certain areas. They tend to remain focused on their area of competitive advantage and outsource or distribute the remaining (upstream or downstream) value creating activities required to fulfill the customer needs. A satirical abstract model of a 21st century enterprise envisages only two employees, a person and his/her dog. “The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment (Hotler, 2002)”. While this is an exaggeration, nonetheless it drives the point home. In such an environment, management of knowledge becomes critical. Accounting and information technologies are at the forefront of this drive for knowledge management.

Traditional enterprises

Virtual enterprises of 21st century

Infrastructure is physically integrated Functional areas of operations are segregated

Infrastructure is virtually integrated Integration of functional areas, integrated process Overhead and capital costs dominate Management of knowledge is critical Strategy is grounded in virtual environment Organizational structure less formal and flat

Labor costs dominate Management of manufacturing process is critical Strategy is grounded in physical environment Organizational structure more formal and hierarchical Management control Systems are rigid Costing systems: traditional volume based, ABC Performance measurement linked to cost based or financial measures

Management control systems are flexible Costing systems: market driven (target costing), life cycle costing Performance measures linked to execution and modification of strategy

Virtual enterprises have been at the forefront of some of the following innovations that have evolved in the last 15 years and epitomize the business model for the 21st century. The primary goal of these enterprises is to remain focused on their core competency and to deliver value to the end-users in an expeditiously and efficiently. (1) Mass customization. It increases the complexity of business processes and in turn the performance measures and metrics. (2) Integrated supply chain. It focuses on successful partnership development and application of information technology for achieving an integrated value chain. (3) Outsourcing and lean production. To achieve market advantages by having proximity to markets, supply channels, and resources, and focusing on their individual areas of competitive advantage. (4) Globalization of input and out markets. Marketing of products and resources requires a framework for expeditious evaluation of global potential opportunities and resources. (5) IT for knowledge management and value creation. Increasing dependence on; information technologies are an integral part of modern organizations to take advantage of open communication and increased alternatives for resources and markets. (6) Holistic approach at managing the organization. Since virtual enterprise and SCM rely extensively on managing partners and technologies, a holistic approach is essential to achieve success in these areas. (7) Emphasis on technology that spans the entire value chain. It suggests a need for justifying and controlling the implementation of ERP for virtual enterprise and supply chain with suitable performance measures and metrics. (8) Cross-functional approach. These enterprises require a cross-functional approach toward managing the organizations as opposed to a silos approach. It again emphasizes need to revamp the performance and cost measurement systems.

Costing in new enterprise environment 347 Table III. Comparison of characteristics between traditional and virtual enterprises

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(9) Customer relationship management (CRM). Many companies attempt to create and increase markets for their products by learning form their existing customers. Therefore, a need for monitoring the performance of CRM is essential. (10) Facilitating B2C, B2B, C2C, C2B, and B2A. These e-commerce systems are essential for achieving lean production with the help of reengineering business process and by eliminating non-value added activities along the supply chain activities. Suitable performance measures and metrics are required for evaluating the effectiveness of these e-commerce environments. Effective managerial control systems have always been important but they have become even more critical in virtual enterprises due to the nature of their business model that necessitates distributed/outsourced value creating activities and increased dependence on organizations outside their direct control. Coordination and control of the complete value creating process (“value-chain”) is the primary managerial challenge in any organization and much more so for the virtual enterprises. Fragmentation of the business processes makes it even more challenging. In virtual enterprises of 21st century, the costing exercise becomes more of the cost of buying products/services. Information sharing and open communication including mutual trust plays a major role in improving the performance of an enterprise in virtual or e-commerce environment. However, most enterprises still use the same traditional costing and management control systems that were developed decades ago for environments drastically (competition, technology, globalization) different from today. The major reasons for adopting a new cost system are discussed here under: (1) traditional costing system does not provide adequate value relevant non-financial information; (2) inaccurate product costing systems; (3) costing system should encourage improvements; and (4) overhead cost is predominant. For example, in virtual enterprises it is important to adopt a costing system based on performance and identifying critical success factors and tracing the measures and metrics to those factors that would ultimately lead to an improved organizational performance and competitiveness and value. Proactive management of accounting and information systems has been identified as the primary managerial challenge of our times (Drucker, 1992; Johnson and Kaplan, 1987). The role of managerial accounting is to provide timely and value relevant information to the managers for decision-making, both long-term as well short-term. In short, effective managerial accounting system should be able to assist managers in planning, coordination, control, performance measurement, and motivation by providing information that would change the decision on hand and add overall value to the enterprise. A tall order indeed! Today’s enterprises are generally overloaded with numerous measures. These measures get acquired over the life of the enterprise and it is difficult to remove protocols that take a life of their own. Some of these measures loose relevance over time and might even encourage dysfunctional behavior. Along with the efficient and value creating systems (agile/flexible) required by the advanced enterprises, the managerial accounting systems also have to become lean and strategy oriented.

Measurement for the sake of measurement is counter-productive by adding noise and friction to the system. We suggest a Measurement Alignment Matrix, a new framework, to assess the efficacy of different measures (current and proposed) to ensure that the performance measurement matrix is fully aligned with the strategy of the enterprise. Just like any living system, the measurement matrix of an enterprise needs to be fine-tuned regularly.

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3.2 Costing and performance measures in virtual enterprises In this section, we discuss the implications of characteristics of a virtual enterprise on the related performance measures and costing (Table IV). Virtual enterprises (the new enterprises) of the 21st century have several defining characteristics. The successful business models for such enterprises come in different flavors. For example, virtual integration of infrastructure and functional areas, domination of indirect costs and capital costs over direct costs and operating costs, knowledge-based operations, informal and flat organizational structure, and flexible management controls. The critical success factors and the related performance and cost measures for these enterprises are listed in the Table III. Needless to say, it is difficult to establish an apriori one to one mapping of the business model for new enterprises to the performance and cost measures. An enterprise may strategically decide to adopt more than one type of models and the related success factors and performance and cost measures will have to be tailor made. 4. Challenges for managerial accounting researchers and practitioners The accounting professionals in advanced enterprises of 21st century will have to acquire a different kind of mind-set and skills-set than those in the traditional enterprises, unless they want to become redundant (Elliott, 1986). Johnson and Kaplan (1987), while discussing the growing irrelevance of existing measures, wonder why the researchers did not bother to develop new systems and think outside the box. “One might wonder why the university researchers failed to note the growing obsolescence of organizations’ management systems and did not play a more active or stimulate role to improve the art of management system design. We believe the academics were led astray by a simplified model of firm behavior”. Neely et al. (2000) describes the development and testing of a structured methodology for the design of PMS using balanced scorecard approach and process-based method. The fundamental paradigm shifts in the value creation process necessitate appropriate changes in the management control systems. The performance measures and the conceptual framework to implement them have to change. The managerial accounting discipline and its practices must evolve, if it wants to retain its relevance in the changed world. It has to become more proactive in responding to the rapidly changing market and business environment. During the last 20 years, the role of accounting function has changed significantly to align itself with the new business models. Essentially, it requires a different mindset. This is even truer of virtual enterprises where speed, agility, and alacrity are of essence. (1) Staff to line. The accounting has moved from a being a mere support function for managerial decision-making to being an active partner in the decision-making process. Accounting professionals find themselves as active

Table IV. Costing and performance measures in virtual enterprises

IT/IS, matrix, decision time to develop partnerships and strategic alliances, time to make Integration of functional areas and Communications, training and integrated business process education, strategic alignment between corporate, business, functional/operational strategies, reengineering Overhead and capital costs dominate Budgetary controls, reengineering, over direct costs effectiveness/productivity, forecasting, ABM Knowledge management Training and education, IT/IS, strategic alignment, team effort, innovation, employee empowerment Strategy is grounded in virtual Strategic alliances, core environment competencies, partnership formation Organizational structure less formal Quick formation and dismantling of and flat temporary organizations, training and education to be agile, teamwork, IT/IS Flexible management control SCM and agile, dynamic systems performance measures/metrics for changing organizational requirements

Critical success factors (CSF)

Activity-based project costing, market driven (target costing), life cycle costing Market driven (target costing), life cycle costing, ABC

Changes to performance measurement metrics, Changes to information systems/technology, training and education

Benchmarking, best practices, ABC, life cycle costing

Time to develop virtual enterprise, ABC, transfer pricing (including investment in IT/IS, agility measures international TP)

Cost drivers, quality and number of ABC based customer profitability cost pools, variance analysis analysis, market driven (target costing), life cycle costing Conflict reporting, number of Value-based costing decisions made and their impact on system’s performance ROI, profit, cycle time, market share Value-based costing

Lead time for production, elimination of non-value adding activities, rework, etc.

Training and education, strategic, tactical, operational

Costing

350

Virtually integrated infrastructure

Virtual enterprises of 21st century

Performance measures (Should include both financial and non-financial)

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(2)

(3)

(4)

(5)

(6)

members of project teams. The role expands even further in virtual enterprises where functional boundaries are disappearing fast. Improved communication skills. Since the information has to be put to use immediately and keeps changing constantly the accounting professionals have to do a better job of communicating their findings. They have to be able to communicate directly and clearly with other managers within the enterprise who may not have the same level of sophistication in understanding the technicalities. Willingness to benchmark. In order to retain their competitive edge the enterprises have to continuously improve themselves through benchmarking within and outside the enterprise. The accounting professionals within such an enterprise also have to be willing to learn and improve continuously. Data to knowledge. The technology has mechanized and routinized mundane and mechanical tasks like bookkeeping and record keeping. The accounting professional of a 21st century virtual enterprise will have to have the ability to convert data into relevant information and knowledge that will contribute value. Reactive to proactive. Being grounded in historical data, accounting information tends to be mostly reactive and lagging indicator. This is not enough for virtual enterprises. The accounting professional will have to make a conscious effort to go beyond the lagging mindset to a leading and proactive mindset. Total performance management (TPM). Performance management is the responsibility of everyone in an organization and not just confined to accounting department. It is a new workplace culture that requires all people in the organization are accountable for their performance either individually or collectively. An interdisciplinary team consists of people from different functional areas should be formed for managing the performance at various levels of an organization

Following are some of the challenging tasks for managerial accounting researchers and professionals: . Develop a value-based costing system by identifying the critical areas of an organization that would influence the overall outcome of the business . Develop performance measures and metrics to evaluate the alignment between strategies at different levels such as strategic, tactical, and operational. . Measurements for evaluating the return on knowledge capital (Roslender and Fincham, 2001). . Evaluating the risks involved by not making right decisions at strategic, tactical, and operational levels. . How to measure information system productivity (strategic impact and operational benefits)? . How to apply the concept of international transfer pricing for making decisions regarding the cost of products obtained from suppliers?

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.

. .

352

.

Application of financial and non-financial performance measures and tangibles and intangibles in virtual enterprise and SCM. How to optimize the knowledge required in new enterprise environment? Develop new costing framework for measuring various costs for product-mix decisions and pricing decisions Measurement of performance e-logistics.

5. Summary and conclusions In this paper, an attempt has been made to study the evolution of manufacturing enterprises together with performance and cost measures. Also, this study aims to identify the challenges before the practitioners and researchers in managerial accounting in terms of developing new cost and PMS taking into account the virtual enterprise and supply-chain environments. The real challenge is to recognize the need for new cost and PMS in new economy. Change the mindset and approach of practitioners in such a way that would make them more proactive and participant in the decision-making process rather than just a data recorder and provider. Moreover, measurement of alignment between different levels of strategies is important to eliminate any errors at the higher-level decisions and hence supports a proactive management approach for improving organizational productivity. Since most of the activities are under the control of partners, an international transfer pricing can be used for estimating the cost of products traded through global outsourcing. The knowledge productivity plays a major role in influencing the productivity of virtual enterprise and supply chain. This requires measuring the knowledge capital productivity and their implications on the overall performance of an organization. In e-commerce and virtual environments, logistics effectiveness contributes to the timely delivery of products to customers and markets; this area needs a set of new performance measures and metrics for measuring the productivity of logistics value chain. The main objective of this paper is to alert the managerial accounting researchers and practitioners for developing new costing and PMS taking into account the new enterprise environment. We have provided some directions and suggestions on the type of accounting systems required for managing the resources judiciously for producing high quality products and services in new economy. References Barker, R.C. (1995), “Financial performance measurement: not a total solution”, Management Decision, Vol. 33 No. 2, pp. 31-9. Birchfield, R. (2002), Keeping Score: 10 Dumb Performance Measurements, New Zealand Management Association, Auckland. Drickhamer, D. (2002), “Next generation performance measurement”, Industry Week, Vol. 251 No. 6, p. 14. Drucker, P. (1992), “Be Data Literate – know what to know”, in Young, S.M. (Ed.), Readings in Management Accounting, 3rd ed., Prentice-Hall, New York, NY. Elliott, R.K. (1986), “Dinosaurs, passenger pigeons, and financial accountants”, World, New York, NY.

Elliott, R.K. (1992), “The third wave breaks on the shores of accounting”, Accounting Horizons, June. Ferrara, W.L. (1995), “Cost/management accounting: the 21st century paradigm”, Management Accounting, pp. 30-6, December. Fleischman, R.K. and Tyson, T. (1997), “Developing expertise: two episodes in early nineteenth century U.S. management accounting history”, Business and Economic History, Williamsburg, Vol. 26 No. 2, pp. 365-81. Hotler, D. (2002), “21st century management and the quest for excellence: is there anything, new under the sun?”, SuperVision, Vol. 63 No. 10, pp. 3-8. Johnson, H.T. (1992), “It’s time to stop overselling activity-based concepts”, Management Accounting, Vol. 74 No. 3, pp. 26-36. Johnson, H. and Kaplan, R. (1987), Relevance Lost: The Rise and Fall of Management Accounting, HBS Press, Boston, MA. Neely, A., Gregory, M. and Platts, K. (1995), “Performance measurement system design: a literature review and research agenda”, International Journal of Operations and Production Management, Vol. 15 No. 4, pp. 30-117. Neely, A., Mills, J., Platts, K., Richard, H., Gregory, M. and Keenerley, M. (2000), “Performance measurement system design: developing and testing a process-based approach”, International Journal of Operations & Production Management, Vol. 20 No. 10, pp. 1119-45. Sriram, R.S. (1995), “Accounting information system issues of FMS”, Integrated Manufacturing Systems, Vol. 6 No. 1, pp. 35-40. U.S. Bureau of Labor Statistics, Office of Productivity and Technology (2002), Productivity and Costs, Third Quarter 2002, Revised 4 December, available at: www.bls.gov/news.release/ prod2.nr0.htm Further reading Fincham, R. and Roslender, R. (2001), “Thinking critically about intellectual capital accounting”, Accounting, Auditing & Accountability Journal, Vol. 14 No. 2, pp. 383-98. Gupta, K. (2002), “A house divided against itself: changing identity of the accounting profession in the twenty-first century”, working paper, Charlton College of Business, University of Massachusetts-Dartmouth, Dartmouth, MA. Kloock, J. and Schiller, U. (1997), “Marginal costing: cost budgeting and cost variance analysis”, Management Accounting Research, Vol. 8 No. 3, pp. 299-324. Lockamy, A. and Smith, W.I. (2001), “Target costing for supply chain management: criteria and selection”, Industrial Management & Data Systems, Vol. 100 No. 5, pp. 210-8. Previtts, G.J. and Merino, B. (1998), A History of Accounting in the United States: The Cultural Significance of Accounting, Ohio State University Press, Columbus, OH.

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Miltiadis Makrymichalos Pefki, Athens, Greece, and

Jiju Antony, Frenie Antony and Maneesh Kumar Division of Management, Caledonian Business School, Glasgow Caledonian University, Glasgow, UK Abstract Purpose – The purpose of this paper is to demonstrate the vital linkage between six sigma and statistical thinking. The paper also explains the key characteristics required for statistical thinking and some of the common barriers in the implementation of the key principles of statistical thinking. Design/methodology/approach – The objectives of the paper have been achieved in several ways. The paper provides the key principles of statistical thinking and then discusses the possible reasons for lack of statistical thinking in modern organizations. The paper then illustrates the linkage between the statistical principles and six sigma. The tools and techniques of six sigma used within statistical thinking are also highlighted in the paper. Findings – The key findings of this work include the relationship between the two key powerful methodologies: six sigma and statistical thinking, reasons for lack of applications of statistical thinking in organizations, the future role of managers and engineers in companies with regard to statistical thinking era and the commonalities in the application of tools and techniques between these two methodologies. Research limitations/implications – The paper needs more justification through surveys and case examples and this will be the future step of this study. In fact, one of the co-authors is currently conducting a survey in the UK organizations to investigate the relationship between statistical thinking and six sigma. Practical implications – The paper is very practical in nature and it does yield a great value to those people who are currently embarking on six sigma program, especially at senior manager and executive levels. Originality/value – Very little is published in the field of statistical thinking in the UK academic world. In fact, there is a cognitive gap in this field and this paper certainly forms a good platform for further research that will enable to bridge the gap. Keywords Statistical analysis, Corporate strategy, Quality improvement Paper type General review

Managerial Auditing Journal Vol. 20 No. 4, 2005 pp. 354-363 q Emerald Group Publishing Limited 0268-6902 DOI 10.1108/02686900510592043

Introduction: the need for business performance improvement All business activities are subject to variability, and hence uncertainty; consequently, managers have to take decisions in this environment. Managers need to understand the nature of variability and the type of variation (special cause or common cause) in business processes. Making wrong or inappropriate decisions can be costly and waste of effort to organizations. Much about the business world has changed in recent years, largely due to the developments and influence of information technology and global competition. Although most of the businesses today find themselves “drowning”

in data, many professionals still lack the ability to harness the data for competitive advantage (Hoerl and Snee, 2002). Statistical thinking tells us how to deal with variability, and how to collect and use data so that we can make effective decisions on the system or process we are dealing with everyday. All industrial engineers and managers in the 21st century need to be able to think “statistically” and to appreciate fundamental statistical tools and techniques for improving quality and overall business performance (John et al., 2001).

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Statistical thinking Statistical thinking would one day be as necessary for efficient citizenship as the ability to read and write (H G Wells).

Statistical thinking should be an integral and important part of any engineer’s or business manager’s knowledge. According to the definition published in the Glossary of Terms for Statistical Quality Control (ASQ, 1996), “statistical thinking” is a philosophy of learning and action based on the following three fundamental principles: . all work occurs in a system of interconnected processes, . variation exists in all processes, and . understanding and reducing variation is the key to success. Statistical thinking can also be defined as thought processes, which recognize that variation is all around us and present in everything we do, all work is a series of interconnected processes, and identifying, characterizing, quantifying, controlling, and reducing variation provide opportunities for improvement (Snee, 1990). This definition, shown schematically in Figure 1, integrates the ideas of processes, variation, analysis, developing knowledge, taking action, and quality improvement. The importance of statistical thinking derives from the fundamental principal of quality put forth by Deming (1986): “Reduce variation and you improve quality”. Customers of today and tomorrow value products and services that have consistent performance. The consistency in performance can be achieved by systematically eliminating variation in business processes.

Figure 1. Statistical thinking in quality improvement

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Six sigma Six sigma is a business improvement approach that seeks to find and eliminate causes of mistakes or defects in business processes (Breyfogle, 1999; Harry and Schroeder, 2000). It is a disciplined method of using extremely rigorous data gathering and statistical analysis to pinpoint sources of errors and ways of eliminating them (Minitab, 2002). Another definition of six sigma is (Linderman et al., 2003): “Six Sigma is an organised and systematic method for strategic process improvement and new product and service development that relies on statistical methods and the scientific method to make dramatic reductions in customer defined defect rates”. Six sigma is a statistical term that roughly translates to only 3.4 defects or failures or mistakes/errors per million opportunities. The six sigma approach emphasizes in understanding and documenting the business process, developing metrics and hard data, and reducing process variation (Hoerl and Snee, 2002). Six sigma has been quite successful in integrating the simple and powerful statistical tools into the problem-solving methodology DMAIC (define, measure, analyze, improve, and control). This careful integration of tools with the methods is unique to six sigma (Breyfogle, 1999; Ishikawa, 1985; Kume, 1987, 1985; Hoerl, 1998). Six sigma is viewed as a process performance improvement approach and a measure of process capability. The focus is on creating financial gains to the bottom-line of the organization. This is one of the facets of six sigma that is not accentuated in TQM. The bottom-line impact is central to the strong and charismatic leadership and the support that has been given to six sigma initiative in an organization. Another key aspect of six sigma is the integration of human and process elements of improvement. Human elements may include teamwork, communication of results, recognition and awards, training, customer focus, etc. and process elements may include process stability, capability, and process characterization and optimization. Linking six sigma and statistical thinking The six sigma approach has a lot in common with the process improvement and problem-solving strategies which utilize statistical thinking. Statistical thinking is fundamental to six sigma and hence it is imperative to begin with the significance of statistical thinking before six sigma is introduced and developed within organizations. Six sigma differs from other quality improvement approaches in that it focuses on the extensive use of both statistical (e.g. design of experiments, statistical process control, multivariate analysis such as principal components analysis, response surface methods, and so on) and nonstatistical tools (e.g. quality function deployment, pareto analysis, cause-and-effect analysis, affinity diagram, etc.) that are linked and sequenced in a much disciplined way. The goal of standard six sigma statistical training is to give Green Belts and Black Belts an appreciation of statistical thinking and a hands-on introduction to the tools needed for successful projects (Hahn et al., 2001). Broad understanding of statistical thinking at the strategic, managerial, and operational levels is essential to maximise the contribution of statistical thinking to six sigma. It is evident from many research studies that both strategic and managerial aspects of statistical thinking are not yet thought of clearly during the introduction and development of six sigma programs. The successful integration of all the above three aspects of statistical thinking should be the backbone of a successful six sigma initiative.

Principles of statistical thinking All work is a system of interconnected processes The first principle of statistical thinking is that all work occurs in a system of interconnected processes. A process is one or more connected activities in which inputs are transformed into outputs for a specific purpose (Hoerl and Snee, 2002). Businesses and other organizations are made up of a collection of processes. Business processes interconnect and interact to form a system that typically provides a product or service for a customer. Dr Juran, one of the quality gurus, pointed out that the source of most problems is in the process we use to do our work. He insisted that the process was to blame and not the people when working on the process or system improvement. Dr Juran makes the point that “85% of the problems are in the process and the remaining 15% are due to the people who operate the process” (cited in Hoerl and Snee, 2002). Dr Deming, another quality guru stated that the true figure is more like 96/4, i.e. 96 percent of the problems are in the process or system and the remaining 4 percent are due to the people (Joiner, 1994). Although there is a difference between the figures provided by the two “quality gurus”, obviously the vast majority of the problems are in the process/system. Variation exists in all processes The second principle of statistical thinking is that variation exists in all processes. This provides the opportunities for process improvement and hence product quality. Variation is the enemy of quality. Focusing on variation is a key to improve performance and achieve consistency. Of course, in certain situations variation is desirable, such as skills associated with players in a soccer team. It is unintended variation which causes all the problems, which ultimately resulted in increased customer dissatisfaction, undesired product, or service performance, etc. Variation is a fact of life. Variation is all around us. It is present in everything we do, in all the processes operated by us and in all the systems created by us. Variation is the difference between two items/units produced by the same process. Variation creates the need for statistical thinking. If there were no variation, there would be little need to study and use statistical thinking. Understanding, analyzing, quantifying and reducing variation are keys to business success The third principle of statistical thinking is that understanding, analyzing, quantifying, and reducing variation are keys to success of the business. First, variation should be identified, characterized, and quantified in order to understand both the variation and the process that produced it. With this knowledge, we can work to change the process and reduce its variation. The performance of a process is influenced by its average or centering and the amount of variation around the average performance. For process improvement problems, we need to understand the factors which influence the average performance and also those factors which influence variability in process performance. Many managers of today are still concerned about the average process performance and not yet paid much attention to the performance variability. This fundamental problem can be readily rectified by teaching the principles of statistical thinking. Customers of today are more concerned with the consistency of performance and not about how often we can hit the target value of product/service performance. Dr Taguchi’s quality loss function can be used as a

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powerful tool to quantify the loss associated with a product/service when its performance deviates from a desired or target value (Antony and Kaye, 1999). The larger the deviation from target performance, the greater the loss will be. Possible reasons for lack of statistical thinking in today’s businesses There are numerous success stories on the use of statistical thinking and methods in problem solving, process improvement, and cost reduction (Britz et al., 1997; Koselka, 1996). However, the approach has been difficult to integrate into the routine business processes of an organization. The lack of broad and sustained use of statistical thinking and methods in many organizations are mainly due to the following fundamental issues. Shift in the organizations priorities Statisticians have historically functioned as problem solvers in manufacturing, research, and development. In exercising this role, they have focused on individual clients rather than on organizations (Snee, 1991). Global competition has forced managers to rethink how organizations are run and to search for better ways to manage. Problem solving in manufacturing, research, and development, while important, is not seen as particularly relevant to these needs of management (Snee, 1998). Statistics have not been applied for managerial issues Statisticians typically have focused on the technical aspects of statistics. With the exemption of the work of Dr Deming, little energy has been devoted to the use of statistical thinking to better manage the organization and produce better business results. The use of statistical thinking emphasizes the importance of a process focus for analyzing and quantifying process variation and ultimately will lead to bottom line results – reduced costs and increased revenues. The new way of utilizing statistics is based on a set of strategies that focus on process improvement, integrating statistical thinking and methods into business processes, developing support and involvement of senior management, and creating the infrastructure and skills that enable the organization to use statistical thinking and methods on a broader scale. Managers view statistics as a tool for “fire-fighting” actions One of the most difficult challenges for every manager is to figure out how to use statistical thinking effectively to help them making effective decisions. However, the problem is that managers treat all the problems as due to special cause variation. When a problem arises, they want to fix it as soon as possible in order to deal with their day-to-day job activities. However, what they do not realize is that the majority of the problems are in the system or process which can only be tackled with their full support and approval. The result is that management spends too much time “fire-fighting”, solving the same problem again and again because the system was not changed. These situations are not likely to improve without using statistical thinking strategically. Managers should not only use simple and powerful statistical tools/techniques when the problem arises but also think strategically from the statistical point of view to improve all the business processes through variability reduction programs. Understanding the unique nature of both common and special causes is the key to reducing variation, and reducing variation is the key to improving quality, productivity, and profitability.

Changing the mindset of people in the enterprise Philosopher George Bernard Shaw once noted, “If you can’t change your mind, you can’t change anything”. It is clear that managers, quality professionals, technical personnel, and statisticians all have new roles that require new skills. Box (1988) points out that achieving total quality requires skills in the fields of statistics, management, psychology, sociology, and anthropology. All the people in every organization must continue to learn new ways of operating to compete successfully in a rapidly changing world. However, change implies discontinuity and the destruction of familiar structures and relationships. Therefore, change can be resisted because it involves confrontation with the unknown and loss of the familiar (Huczynski and Buchanan, 2001). Inadequate statistical education for business and engineering curricula at higher education institutions Many engineers have not been taught or have been taught poorly the value of statistical ideas and applications. Research has shown that application of statistical tools and techniques by the engineering fraternity in both manufacturing and service industries is limited and when applied they are often performed incorrectly (Antony and Kaye, 1995). In other words there is a cognitive gap in the knowledge of applied statistical methods required by industrial engineers and managers in many modern organizations. The most common remark made by many engineers is “I can do the text book and class room examples but I am not comfortable while applying the concepts and principles of this statistical tool/technique in my work area”. The main reason identified for that is the lack of statistical education at university level (Antony and Capon, 1999). The courses currently available in engineering and business statistics often tend to concentrate on the theory of probability, probability distributions, and the more mathematical aspects of the subject rather than the techniques which are most practically useful to the engineering and business fraternity (Antony et al., 1997). Fear of statistics by managers A side effect of the inadequate statistical education at university level, as mentioned above, is the fear that managers have when dealing with statistics. Even if they had been taught statistics at the university, it was usually focused on complex maths and formulas rather than the application of statistical tools for problem solving. Usually managers have their first experience with statistical thinking in a workshop inside the company, applying some tools with the guidance of an expert. Although this is the best learning method to understand and experience statistical thinking (Snee, 1993), if the participant does not have a good knowledge of statistics he will struggle to apply the same principles he learnt to a different problem or in a completely different environment. Only if the content and the delivery method of statistical education will radically change, the future managers overcome their fear for statistics. This fundamental problem can be tackled by teaching understandable and usable statistical techniques through practical examples and real case studies at the university level (Bendel et al., 1999). New roles for industrial engineers and managers in statistical thinking era Managers should understand that statistical thinking is not just a set of statistical tools Statistical thinking should not be observed as just the use of powerful statistical tools and techniques with little focus at the concept level. Managers should start considering

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statistical thinking from a “systems” perspective, that is, specifically developing systems that bring together several statistical tools and other methodologies to perform certain activity (Pfeifer et al., 1998). Managers should start using the available data effectively for making decisions Statistical thinking has its roots in the work of Shewhart. One of the important principles of statistical thinking contributed by Shewhart is rational sub-grouping. The idea is to minimize within subgroup variability and maximize the opportunity to detect variability between subgroups. To truly minimize variability, the sources of variation must be identified and eliminated (or at least reduced). This requires process knowledge which is usually derived from theory and data. Data must be collected in a manner that will enable the measurement of variability in the process. In earlier days, collecting scant data in a haphazard manner was appealing to managers because it created the illusion of quick, inexpensive action. Indeed, the action is quick, but not inexpensive. Quick fixes based on incomplete, nonrepresentative data can cause financial losses resulting from action in the wrong sense. The principle of rational sub-grouping is necessary for reducing variability and is, therefore, a natural part of statistical thinking (Hare et al., 1998). Managers should be able to distinguish common and special cause variation in their core business processes Understanding the difference between common and special cause variation is as important as understanding rational sub-grouping. An illustration often used to show the difference is that common cause variation is the variation that a process would exhibit all the time. It is also referred to as the natural process variation. Common cause variation in many cases may be tackled by fundamentally changing the process or system. This requires action from top management. Some of the fundamental differences between common and special causes of variation are shown in Table I. Special cause variation can be readily identified and can be eliminated by adjusting the process. Special cause variation can often be addressed without spending a great deal of time, effort, or money. Eliminating special causes is really fixing problems, or bringing the process back to where it should have been in the first place. Engineers and managers should develop a new way of thinking The secret in helping engineers and managers understand and use statistical thinking is to recognize that statistical thinking is a mindset – a way of thinking, behaving, working, taking action, and interacting with others. Understanding and using statistical thinking requires changing existing mindsets of both engineers and managers.

Table I. Special cause versus common cause variation

Special cause variation

Common cause variation

Process can be unpredictable Often related to a specific event

Inherent in the process Part of the normal behavior of the process or system Process is considered to be stable if only common cause variation is present Reduction of common cause variation entails the use of process-improvement strategy

Process is not considered to be in a state of statistical control Elimination of special cause variation entails the use of problem-solving strategy

Industrial engineers and managers can effectively develop an understanding of statistics using the learn-use-evaluate cycle (Hare et al., 1998). The cycle begins with defining the statistical thinking mindset. This is followed by conducting a learning workshop in which both industrial engineers and managers can deepen their understanding and knowledge of statistical thinking. Since we learn best by doing, the next step is for them to use statistical thinking concepts and tools in their daily work and keep track of experiences, questions, and concerns.

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Statistical thinking principles and six sigma tools/techniques Tools and techniques are practical methods, skills, means, or mechanisms that can be applied to particular tasks. A tool is used on its own and has a clear role. Examples of tools include Pareto analysis, control chart, cause and effect analysis, etc. A technique, on the other hand, has a wider application than a tool and is often thought of as a collection of tools. Examples include QFD, Robust design, DOE, SPC, etc. The successful implementation of statistical thinking principles requires stringent application of these tools/techniques. This section is looking at what tools or techniques of six sigma could be employed during the successful implementation of statistical thinking (refer to Table II). Future steps in statistical thinking Statistical thinking and six sigma approach are mainly implemented in the manufacturing industry. Recently, we have witnessed an increasing number of implementations of these approaches in the service industry. The authors believe that statistical thinking and six sigma are applied to all industries irrespective of their nature and size. In the future, statistical thinking together with some basic mathematics, economics, and quantitative and analytical thinking and computing skills provide the foundation for studying more statistically advanced subjects. In disciplines such as marketing, product development, economics, finance, and so on statistical thinking and its elements – process, variation, and data – are fundamental to deeper understanding and use of associated statistical methods. The potential benefits through the systematic utilisation of statistical thinking in every process of the business are guaranteed and will be impressive. Statistical thinking principles

Six sigma tools

Six sigma techniques

All work occurs in a system of interconnected processes

Process maps, SIPOC, value stream mapping, affinity diagram, cause and effect analysis Histograms, box plots, control charts, run charts, multivari charts Hypothesis testing, correlation analysis, Pareto analysis, ANOVA, control chart, regression analysis

QFD, FMEA

Variation exists in all processes Understanding and reducing variation are the keys to success

Process capability analysis, measurement system analysis DOE, Taguchi methods, SPC, Shainin’s variables search method

Table II. Six sigma tools/techniques used within statistical thinking

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Conclusions Businesses have begun to respond to the new economic era in which we live. This response takes many forms. Much of it is aimed at improving the quality of everything we do. The industrial engineers and managers in the 21st century have two jobs: to do their ordinary work but at the same time continuously improving how they do their work. The attention on improving everything we do has brought with it a renewed emphasis on statistics and in particular on statistical thinking. The improvement activities which derive from statistical thinking are process improvement and problem solving. Problem-solving strategy has been applied in the past but without delivering the expected results. The main reasons identified for that are: statistics was never used before for managerial issues and when they were used they were focused on “fire-fighting” actions. Additionally, there is inadequate statistical education (especially for industrial engineers and managers) resulting in a fear of statistics. Finally, there is always a resistance to change the way people manage processes and they are used to it. Moreover, in order to produce the best results through the use of statistical thinking, managers should also change the way they work, i.e. change of mindset or attitude or new way of thinking toward work activities and daily tasks. They should also understand that statistical thinking is much more than a set of statistical tools and techniques. Primarily, statistical thinking is a philosophy, a concept that variation exists in every process and reducing variation improves product/service quality. It is also important for the managers of the 21st century to be able to distinguish the common and special cause variation, and thereby establishing a greater knowledge of the process. References American Society for Quality (1996), Glossary and Tables for Statistical Quality Control, Statistics Division, Quality Press, Milwaukee, WI. Antony, J. and Capon, N. (1999), “Teaching experimental design techniques to industrial engineers”, International Journal of Engineering Education, Vol. 14 No. 5, pp. 335-43. Antony, J. and Kaye, M. (1995), “Experimental quality”, Journal of Manufacturing Engineer, Vol. 74 No. 4, pp. 178-81. Antony, J. and Kaye, M. (1999), Experimental Quality: A Strategic Approach to Achieve and Improve Quality, Kluwer, Boston, MA. Antony, J. et al. (1997), “Use your reason to understand statistics”, Quality World, Vol. 23 No. 10, pp. 850-3. Bendel, A. et al., (1999), “The future role of statistics in quality engineering and management”, The Statistician, Vol. 48, Part 3, pp. 299-326. Box, G.E.P. (1988), “Statistical tools for the engineer, the scientist and the production worker – the opportunity and the challenge”, paper presented at the American Statistical Association Annual Meetings, August. Breyfogle, F.W. III (1999), Implementing Six Sigma: Smarter Solutions Using Statistical Methods, Wiley, New York, NY. Britz, G. et al., (1997), “How to teach others to apply statistical thinking”, Quality Progress, ASQ, June. Deming, W.E. (1986), Out of the Crisis, Massachusetts Institute of Technology Centre for Advanced Engineering Study, Cambridge, MA.

Hahn, G.J. et al. (2001), Statistical Tools for Six Sigma: What to Emphasize and De-emphasize in Training, Technical report, G.E. Research & Development Centre, American Society for Quality, WI. Hare, L.B. et al. (1998), “The role of statistical thinking in management”, IEEE Engineering Management Review, Fall, pp. 69-77. Harry, M. and Schroeder, R. (2000), Six Sigma: The Breakthrough Management Strategy Revolutionising The World’s Top Corporations, Currency/Doubleday, New York, NY. Hoerl, R.W. (1998), “Six sigma and the future of the quality profession”, Quality Progress, pp. 35-42. Hoerl, R.W. and Snee, R.D. (2002), Statistical Thinking: Improving Business Performance, Duxbury Press, Belmont, CA. Huczynski, A. and Buchanan, D. (2001), Organizational Behaviour: An Introductory Text, 4th ed., Prentice-Hall, Englewood Cliffs, NJ. Ishikawa, K. (1985), What is Total Quality Control? The Japanese Way, Prentice-Hall, Englewood Cliffs, NJ. John, J., Whitaker, D. and Johnson, D. (2001), Statistical Thinking for Managers, Chapman & Hall/CRC, Boca Raton, FL. Joiner, B.L. (1994), Fourth Generation Management, McGraw-Hill, New York, NY. Koselka, R. (1996), “The new mantra: multivariable testing”, Forbes, March. Kume, H. (1985), Management by Quality, Loftus, J. (translator), 3A Corporation, Tokyo. Kume, H. (Ed.) (1987), Statistical Methods for Quality Improvement, Loftus, J. (translator), The Association of Overseas Technical Scholarship, Tokyo. Linderman, K. et al. (2003), “Six sigma: a goal-theoretic perspective”, Journal of Operations Management, Vol. 21, pp. 193-203. Minitab (2002), Minitab Minitab Electronic News, February. Pfeifer, C.G. et al. (1998), “Statistics – a road to the future: a time for change”, Chance, Vol. 1, pp. 39-42. Snee, R. (1990), “Statistical thinking and its contribution to total quality”, The American Statistician, Vol. 44 No. 2, pp. 116-21. Snee, R. (1991), “Can statisticians meet the challenge of total quality?”, Quality Progress, January, pp. 60-4. Snee, R. (1993), “What’s missing in statistical education”, The American Statistician, Vol. 47 No. 2, pp. 149-53. Snee, R. (1998), “Getting better business results; using statistical thinking and methods to shape the bottom line”, Quality Progress, June. Further reading McQuater, R.E. et al. (1995), “Using quality tools and techniques successfully”, The TQM Magazine, Vol. 7 No. 6, pp. 37-42. Pande, P.S. et al. (2000), The Six Sigma Way: How GE, Motorola, and Other Top Companies Are Honing Their Performance, McGraw-Hill, New York, NY. Snee, R. and Hoerl, R.W. (2003), Leading Six Sigma, FT Prentice-Hall, Englewood Cliffs, NJ.

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Mechanical Engineering Department, Government College of Technology, Coimbatore, Tamil Nadu, India, and

M. Rajendran S.R. Devadasan Production Engineering Department, PSG College of Technology, Coimbatore, Tamil Nadu, India Abstract Purpose – To explore the current status, prowess, and future of quality audits, which would help both researchers and practitioners to adopt quality-auditing practice for achieving the objectives of continuous quality improvement (CQI) models like total quality management (TQM). Design/methodology/approach – The literature on quality audits was collected from the Emerald-insight library. The most appropriate papers dealing with quality-auditing practice and its closely related topics were excavated. These papers were classified into six categories and their contributions with inferences drawn have been presented. Findings – Quality audits are not only meant for checking the systems for their compliance with quality system (QS) standards, they can also be used for exercising CQI and reaching the benchmarks of TQM. The conclusive finding is that identification of a legitimate quality audit standard and its financial accounting system shall be the future focus of research in this arena. Research limitations/implications – In comparison to the volume of QS certifications that have taken place throughout the world, the number of papers on quality audits and its closely related topics excavated through literature mining exercises was less. This may aberrate the findings and inferences of literature mining on quality audits. Practical implications – The findings and inferences drawn by conducting the literature mining on quality-auditing will be useful to the practitioners for orienting quality audits toward achieving the goals of models like TQM. This will ensure the cost effectiveness of quality audits and reaping larger benefits out of them. Originality/value – This paper shows a future focus of research which would help the researchers working in TQM arena to work in this direction in consultation with practitioners. This would witness the development of performance measurement metrics and financial accounting systems pertaining to the conduct of quality audits. Keywords Quality audit, Quality systems, Quality improvement, ISO 9000 series Paper type Literature review

Managerial Auditing Journal Vol. 20 No. 4, 2005 pp. 364-382 q Emerald Group Publishing Limited 0268-6902 DOI 10.1108/02686900510592052

The authors are thankful to their students who helped to collect the full texts of the papers and word process this article. The authors gratefully acknowledge the help rendered by Mr.D. Edwin Joseph Raj, Assistant Professor, English Department, Government College of Technology, Coimbatore, India, toward enhancing the presentation quality of this article. The authors acknowledge with thanks the service rendered by Professor Gerald Vinten, the editor of Managerial Auditing Journal and reviewers, toward reviewing this article.

Introduction Right from the days the world recognized “quality” as the weapon to fight the global competitive war (Dunk, 2002), organisations had been striving to implement the principles of total quality management (TQM). This phenomenon has resulted in the implementation of systems, models, techniques, tools, and standards under the umbrella name of TQM in organisational arena to varied extents. Some of them have sustained even today while the remaining vanished. Among all, the most noticeable one that has been dominating organisations is the installation of quality systems (Berry, 1998). Majority of QS installations have been carried out according to the ISO 9000 series standards. According to Marshall (2002), who cites an ISO 1999 survey, the number of registrations to the ISO 9000 series stood as 2,71,966 in 149 countries. Further, he claims that this grows at a rate of 48,000 registrations per year. One of the requirements of implementing those Quality systems is the conduct of audits (Karapetrovic and Willborn, 2001). From the time the requirements for the installation of QS standards were known, the organisations have been conducting quality audits (Vinten, 1998). Before that, organisations had been accustomed to conduct only the financial audits (Karapetrovic and Willborn, 2000a) and quality audits were hitherto unheard in organisations. Hence, it was a new kind of experience when quality audits became a part of QS certification exercise. Today’s organisations are compelled to obtain QS certification in response to the demands of customers and business conditions (Marshall, 2002; Tsim et al., 2002). In order to meet this requirement at faster rate, quality-auditing exercise is being carried out hurriedly as a part of QS certification process (Karapetrovic and Willborn, 2000a). Because of this trend, the hidden agenda of quality audits are not realized in majority of today’s organisations and as a result, its authentic benefits are not fully nourished. To be precise, organisations view quality-auditing only as a checkpoint, which has to be crossed to obtain QS certification. The fact is that a suitably timed and properly organized quality-auditing programme will lead to continuous quality improvement (CQI) (Beecroft, 1996). However, many quality engineers and QS consultants do not consider quality-auditing as a technique enabling CQI. Because of this situation, only the scant results of CQI efforts have been experienced by today’s organisations through the conduct of quality audits. While practitioners have been conducting quality audits intensively to obtain QS certification (Vinten, 1998), researchers have been working in different directions to explore the prowess of quality-auditing. For example, one group of researchers has appraised the need of adopting an integrated standard for auditing QS along with environmental and safety systems. Likewise, another group of researchers has been striving to evolve new or improved modalities for enhancing the effectiveness of quality audits. Thus, researchers have been striving to explore the prowess of quality audits, through various avenues and mechanisms. However, it appears that practitioners have recognized quality-auditing only as a routine exercise for obtaining QS certification. Amidst these contrasting situations, we developed interest to study the current trends of research and practice of quality audits in organisations and explore their prowess and future focus. For this purpose, the literature on audits was systematically mined. The details of this exercise are presented in this paper.

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Figure 1. Categorization of literature mining

Literature mining The literature mining work was started by searching the Emerald library database (www.emeraldinsight.com) by inputting “audit” as the main keyword. It was quite encouraging to see the list of papers, which indicated the availability of as many as 200 papers on audit and auditing programmes. However, while reading the full text of those papers, it was found out that most of them dealt with clinical audits and general auditing principles. Since the scope of the study has been restricted to quality-auditing, all the papers had to be subsequently scrutinized. We call this practice “literature mining” because papers had to be carefully studied to identify their inner contents and excavate the relevant contributions on quality audits and their closely related topics. As a result of this practice, 57 papers were found to deal with quality-auditing and its closely related topics. A careful over viewing of these papers indicated that, those papers could be classified under six categories. This is depicted pictorially in Figure 1. The scope of the first category of papers was limited to appraise the QS certification process in which quality-auditing was also a part. Hence, the treatment on quality-auditing in those papers is found to be minimal. The second category of papers addresses the modalities of implementing quality-auditing. The third category of papers deals with the standards that were available to check the implementation of quality-auditing. The fourth category of papers reports the surveys carried out in practical arena on quality-auditing. The fifth category of papers reports the impacts of quality-auditing, which are mostly favourable toward CQI. Even while analysing the above five categories of papers, we came across the sixth category of papers that points out the need of financial management of quality-auditing. While attempting to segregate the literature, it was found that some papers focused exclusively around the six categories. The numerical data concerning these papers are indicated in Table I. The contents of the remaining papers were found to overlap with at least two categories, which are pictorially depicted in Figure 2. The numerical data pertaining to those papers are presented in Table II. A distinct aspect that could be noticed was the availability of maximum number of papers on modalities of conducting quality audits. In this case, it was observed that 26 out of the total 57 papers were found to deal exclusively with modalities of conducting quality audits. This indicates that the current research activities on quality-auditing are largely

concentrated on exploring the modalities of conducting quality audits. The number of papers dealing with other categories were found to be very less and nearly equally distributed. This hints that only a small portion of the research activities has been taking place on quality audits concerning routine exercise, surveys, standards, and reported impacts. Amidst this development, a new category of research has begun to explore the ways of financially managing the performance of quality audits. The study of all the above papers has revealed the interesting developments that have been taking place in quality-auditing field. The details are briefly reported in the following sections of the paper.

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Quality audits as a routine exercise As shown in Table I, three papers, which consider quality-auditing only as a routine exercise of implementing QS and TQM, have appeared in this category. Although the treatment on quality-auditing is minimal in those papers, the pointers indicated by these authors are valuable with respect to the conduct of quality audits. The salient contributions of these papers are presented in this section.

Categories Total number of papers

Auditing Financial Routine through Reported costing Grand exercise Modalities standards Survey impacts management total 3

26

1

1

5

2

38

Table I. Exclusive literature on quality audits-numerical data

Figure 2. Combined categories of literature mining on quality-auditing

Table II. Combined literature on quality audits- numerical data

Total number of papers

2

5

3

1

2

1

3

2

19

Survey and reported Grand impacts total

368

Routine Routine exercises Routine Routine exercise Modalities and Modalities Modalities Combined exercises and and auditing through exercise and reported auditing through and and reported categories modalities standards and survey impacts standards survey impacts

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Motwani et al. (1996) have aimed to explain the methodologies involved in implementing ISO 9000 series standards released during 1994. They have described the characteristics of these standards, their certification process and a case study on its implementation in a “fortune 500 US” manufacturing organisation. A vital part of this paper is the dealing of quality-auditing for successfully implementing ISO 9000 series standards. They have appraised the importance of quality-auditing in all stages of ISO 9000 implementation. They have mentioned the three steps to be followed to conduct QS audits, which start by reviewing the QS manual. In the case study explained, they have pointed out indirectly that quality-auditing is an inseparable phase of ISO 9001 certification. They have also presented a quality-auditing method adopted by an organisation. According to this method, the clause, which will be subjected to auditing, would not be informed in advance. They have mentioned that this organisation has not taken effort to track the expenses of ISO 9001 QS implementation. However, the expenses incurred toward registration and auditing processes were computed. They have indicated that the registration fee and auditing expenses totalled approximately $30,000. These expenses include transportation, boarding, and lodging. This heavy expenditure indicates the importance to be shown toward quality-auditing during the installation of QS. Rissanen (2000) has described the implementation of ISO 9002-1994 at Kuopio University Hospital situated in Finland. In one of the sections, he has described the efforts taken to audit the QS in the hospital. He has appraised the need of gaining good experience by the auditors toward the QS assessment process. He has also mentioned that extended re-auditing takes place annually in Kuopio University covering one-third of the departments. He has claimed that external assessment is necessary for implementing the quality management system (QMS). He has also pointed out that the auditors are helpful in ensuring the employees clearly understand the elements of QMS. Dale et al. (1997) have used an audit tool called “TQM sustaining audit tool” to examine the sustainability of TQM. They have encapsulated five categories in this tool. These categories are termed as “internal / external environment”, “Management style”, “policies”, “organizational structure” and “process of change”. These categorization hints that these activities and aspects are routinely essential for ensuring the sustainability of TQM. Reviewing the above papers lead to sensing of three pointers. First, a large portion of money has to be spent for conducting quality audits. Second, quality-auditing has to employ well-trained and educated quality auditors who will in turn be helpful to the employees for successfully implementing QMS. Third, quality audits are not required just for obtaining ISO 9001 certification but also for sustaining CQI programmes including TQM. Modalities of conducting quality audits As mentioned earlier, the number of papers in this category are significantly the highest among the six categories. These papers deal exclusively with quality audits. A few of these papers deal with different quality-auditing methodologies while some of them deal with the modalities that are based on ISO 9001 and ISO14001 standards. Remaining papers thrust self-auditing practice as a modality of conducting quality audits. Thus, three groups of papers could be identified in this category.

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In the following paragraphs of this section, the contributions of sample papers under each group are presented. Tools and techniques Chapman and Massey (2002) have addressed quality-auditing for enhancing quality in libraries. They have developed a quality audit tool and technique. They have mentioned various issues including sampling, sample size, testing for accuracy, and completeness. They have also described the pilot study conducted and provided the methodology for simplifying the audits. Although their work is concentrated on quality of a library, their contributions can be suitably exploited by the quality auditors for conducting quality audit in any other types of organisations. Wharton (1997) has contributed an audit methodology by using the loop, which has been developed by mixing Deming cycle and ISO 9001:1994 models. He has shown that using this loop, the quality audit can be used for effecting CQI. Karapetrovic and Willborn (2000b) have contributed a methodology for generic audit, which makes use of the system approach. The main merits of the generic audit methodology are its practical compatibility and ability to focus toward CQI. The complete guidelines for conducting the generic audit have been presented. Though Peters (1998) has not contributed any methodology for conducting quality audits, he has cited the need of a quality auditing methodology which should be flexible and capable of responding to the dynamic requirements of the markets and strategic directions of the organisation. While most of the authors have concentrated on auditing QS with reference to standards and other general CQI programmes like TQM, Ho (1999) has contributed a checklist methodology for auditing 5-S practices. Although the title leads to an impression that the paper exclusively deals with 5-S auditing, except the “conclusion” section, all other sections deal with the fundamental principles of 5-S. However in the appendix, the audit checklist against each “S” of 5-S practice has been presented. He has claimed that this audit checklist will be a seed to promote important work environment for implementing 5-S. This paper indirectly hints at the need of conducting quality audits while installing not only QS but also starting any CQI programme. Vinten (1994) has provided the methodology of infusing behavioural aspects and ethics in quality auditing programmes. Indirectly he has hinted that a quality-audit methodology should be free from blaming anyone for any error and discussing the audit finding on the job. Particularly, participative teamwork approach has been suggested for carrying out quality audits. Though the scope of Karapetrovic and Willborn (2000a) is restricted to quality assurance and effectiveness of audit systems, they have named the audit methodologies which include discovery, acceptance and estimation sampling, computer aided audit tools, risk or procedure driven auditing, flow charts and check lists. In line with this paper, Barthelemy and Zairi (1994) have mentioned several types of audits under the names “functional”, “conformance to requirements”, “processes” or “products”, “systems”, “theme” and “time”. Besides, they have contributed two major approaches namely, internal and proactive auditing. In essence, this first group of papers has appraised the importance of developing quality auditing methodologies, which shall be flexible and twinned with ethical principles. These methodologies should not be stopped with mere checking of practices against the specified management system standards, rather they should aid in exercising CQI.

Certification against standards The second group of papers deals with modalities that are meant for auditing during system standards certification. Gardner (1997) has pointed out that the basic audit principles can be adopted for auditing the ISO 9000 certification. However, he has claimed that new auditing concepts have to be incorporated for further enhancing the effectiveness of the ISO 9000 systems. For this purpose, he has suggested three concepts namely audit-interview, lateral-view auditing, and requirement/documentation matrix auditing. He has contributed the instruments required for successful implementation of auditing using ISO 9000 principles and enumerated the complementary TQM benefits which are reaped by the organisation while carrying out the auditing practices. Yun and Hou (1997) have pointed out that ISO 9000 certification can be obtained only through a third party’s quality-auditing. They have followed a checklist methodology tool to develop an expert system for benchmarking a QMS through ISO 9000 certification. In line with this paper, Muthu et al. (2001) have contributed a knowledge-based system for pre-auditing a QS 9000 based maintenance QS. These two papers have hinted at the need of taking careful effort to gather data through pre-auditing and analysing them to evolve corrective actions. Ovretveit (1993) has contributed a quality-auditing method, which has been primarily developed by referring to BS 5750 model. But the objective of this method is to audit an organisation to test whether it stands fit for obtaining the Malcolm Baldridge National Quality Award, European Foundation for Quality Management Award and Brunel Strategy for Organisation of Services. In essence, this paper indirectly hints at the need of referring to ISO 9000 based standards while designing and developing quality-auditing methods. Lawrence et al. (2002) have contributed two methods, by name “mass balance/multicriteria assessment” and “environmental audit” for auditing ISO 14001. Although ISO 14001 deals with environmental management and does not mention about CQI, its potential benefits are similar to that of QS standards. Hence, QS auditors can well adopt the contributions of this paper. The main contribution of this paper is the citing of tangible and intangible aspects to be considered while auditing. The paper also emphasises upon system focus and communication. The papers in this group point out the benefits of developing quality-auditing methodologies by particularly referring to the system standards. However, these papers have not mentioned about the adoption of ISO10011:1990 quality-auditing standard, which was available at the time of the publishing these papers. Only exception to this statement is Yun and Hou (1997) who have referred to ISO 10011 (1990) for defining the auditing of QS. Barring this paper, the review of this group of papers leads to an impression that not many quality auditors and researchers refer to ISO 10011:1990 standard as a framework while conducting quality audits. Self audit The third group is represented by only two papers, which deal with an advanced concept called self-audit. Karapetrovic and Willborn (2002) have provided a detailed account of self-auditing procedures. The unique feature of this paper is that all self-audit procedures are described with reference to the ISO 9001 certification process. Various issues and principles pertaining to the successful implementation of self-audit have been elaborated. The concluding part of this paper indicates the high potential available for future research in the direction of carrying out self-audit. In line with this

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paper, Ni and Karapetrovic (2003) have mentioned the need of bringing out some radical changes in the quality-audit methodology. These radical changes are vitiated particularly due to the emanation of ISO 9001:2000. An important contribution of this paper is the statement which claims that the new quality-auditing standard, namely ISO 19011:2002 does not address certain legitimate issues of ISO 9001:2000. In order to overcome this deficiency, they claim that a perennial audit concept has to be coupled with that of self-audit. The model proposed in this paper provides flexibility for upgrading the QS standard as and when they are revised and brought out to the organisational arena. Surprisingly, these two papers do not support the adoption of new ISO19011:2002 standard. Auditing through standards Though the field of QS is flooded with standards (Besterfield et al., 2004), the field of quality-auditing appears to be hesitant in adopting standards. Despite the existence of ISO 19011:2000 standard, no paper that exclusively deals with the quality audits conducted by referring to this standard could be identified. Although quality audits are conducted as a routine practice while implementing QS standards, no paper reporting the quality audits, which strongly adhered to quality auditing standards, could be located. At one point of time, the literature mining resulted in identifying one paper that refers to the standards while conducting audits. This paper, contributed by Pennebaker and Vogels (2002), deals with an audit on quality and service effectiveness at the community centre called Men’s Meeting Place located in Kwinana, Western Australia. Though this paper also does not deal with any quality-auditing standard, the work reported is highly dense with standards. This work hovered around 20 national standards for mental health which were referred to while conducting the audit. A quality improvement plan was developed based upon the findings. The results drawn by referring to these standards indicate the feasibility of conducting benchmarking exercise against the set standards, enabling the organisation to achieve CQI. This implies that adoption of quality auditing standards would focus the organisations toward achieving CQI. Since today’s organisations have not progressed much in this direction, theorists and practitioners must lay greater emphasis on adoption of quality-auditing standards. Survey One way of examining the effectiveness of audit is by conducting surveys. However, it appears that not many researchers have examined the effectiveness of conducting quality audits by surveying the stakeholders. Only exception is Heath and Milne (2002) who have reported the conduct of quality audit in healthcare by surveying the patients and other stakeholders. They have admitted that there exists a weak link between audit and service quality. An important contribution of this paper is the suggestion for following partnership process while conducting quality audits. Before concluding this paper, they have mentioned that the survey based quality-auditing requires additional resources but results in higher benefits. This statement leads to an inference that quality audits should be subjected to performance measurements using financial metrics.

Reported impacts Although many papers report CQI as the impact of quality-auditing, few papers have reported exceptional impacts. Collingwood (1996) has reported the impact of quality audit in healthcare system, which has resulted in succeeding the goal and then establishing higher level of goals for achieving CQI. An important point that is stressed is the seriousness of the financial investments made in the organisation, which has propelled the quality movement in healthcare system. This implies that the quality audits conducted in an organisation should result in impact, which should be financially comparable against the expenditure incurred. Beckmerhagen et al. (2003) have focused audit as a supporting structure for system integration. They have claimed that auditors must possess expertise to assist the management for integrating the functions of management system. They have presented a procedure for attaining continuous improvement using audits. An important claim is that, the theory and practice of management systems must be of real value. This is true in the case of quality audits as well, which are required to demonstrate the performance through financial values. They have welcomed the release of ISO 19011, but have pointed out its deficiencies. Fa (1997) reports the impact of auditing that has been sensed in the form of strengthened supervision and enhanced consciousness over observing laws and regulations. The paper concludes by pointing out the difficulties faced in conducting internal audits in tobacco industries and emphasises upon achieving new benefits. It is presumed that tobacco industries failed to recognize quality-auditing because its investment and benefits are not financially visible. The papers in this section report the impacts of audits, but have invisibly whispered that financial measures are necessary to check the balance between the expenditure and gain of conducting audits. Financial management As indicated in the previous sections, the results of literature mining hinted the need of financially measuring the performance of quality audits. Though it is a highly sensational revelation, the researchers in these directions have not made in-depth contributions. Hence, it was possible to sight only two papers that view quality audits from the point of view of financial management. Robinson (1995) has brought out a model for costing audits, estimating their cost effectiveness, and cost-utility analysis. He has also shown the challenges to be faced in this direction. Robinson and Lefort (2000) have presented briefly a method, which they call it “a crude method”. According to this method, the average cost of conducting an audit is calculated by dividing the annual audit budget by the number of audits carried out during the previous years. Both these papers have cited the limitations of the financial costing of audits. On studying these papers, we infer that these deficiencies can be overcome by developing a financial accounting system for conducting quality audits. Routine exercise and modalities Two papers have been found to deal with modalities of QS audits and its treatment as the routine exercise. Smith et al. (1994) have appraised the failure rate of total quality programmes and contributed an approach for ensuring the success of such programmes. One of the instruments that have been utilized is a quality-audit checklist. They have appraised the utility of quality-audit checklists in examining the outcome of the previous total quality activities. They have followed the checklist method for conducting quality

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audit for this purpose. They have mentioned that the quality-audit checklist describes the current position of the company with regard to total quality. Rippin et al. (1994) have contributed a framework of conducting quality audit for accomplishing quality enhancement. Their method includes both questionnaire and quality-auditing checklists meant for enhancing quality of education. While concluding the paper, they have indicated that quality audits should enjoy the support of management, should not consume too much of employees” time and their outputs should be practical in nature so that they could be successfully implemented. In a nutshell, these two papers have recommended the checklist method for conducting quality audits. Routine exercise and auditing through standards Berry (1998) has cited the increasing interest shown by all kinds of organisations toward implementing quality systems. He has contributed a model for developing quality systems in New South Wales schools. He has dealt with QS auditing as a routine exercise for implementing QS. In certain portion of the paper, he has equated quality assurance with quality audits. Then he has appraised the use of ISO 9000 series standards as a supporting guide to conduct QS audit. However, he has not suggested the use of ISO 10011 for conducting QS audits. It leads to an impression that professionals like this author who work in developing Quality systems seldom adopt the standard, which is exclusively required to be referred during the conduct of quality audits. Karapetrovic and Willborn (1998a, b) have explained the need of integrating quality and environmental systems. In one section of the paper, they have appraised the need of an integrated auditing system for this purpose so that audits could be carried out on routine basis for implementing such integrated systems. They have discussed the integration of quality-auditing standards namely ISO 10011/2/3 with environmental audit standards called ISO14010/11/12. They have warned that in the absence of integration of these two audit standards, the organisations tend to lose resources, time, and cost. This appraisal leads to the drawing of corollary that any quality-auditing programme is required to exhibit its performance through financial metrics. Karapetrovic and Willborn (1998c) have claimed the necessity of incorporating system view while enhancing the quality of performance of organisations. As a routine exercise of system’s view they have included quality audit systems. They have used ISO 10011 (1990) for providing systems view to conduct quality audits. They have suggested modifications to the definition of quality audit, which is given in ISO 8402 (1994). Karapetrovic (2002) has cited the emanation of a number of management system standards including ISO 9000, 14000, BS 8800, IEC 60300, and SA 8000 during the last decade. He has dealt with audit as a routine exercise of implementing these standards. He has pointed out the difficulties in conducting audits, which include prevailing high cost of conducting multiple audits, inadequacies of audit methodologies to catalyse the improvement and evaluate the system efficiency. As a solution to overcome these hurdles, he has suggested the integration of management and audit systems. It is inferred that in spite of the high cost involved, QS audits cannot be dispensed with but should be devised to deliver efficient and economically favourable results. Routine exercise and survey Lee et al. (1999) have surveyed ISO 9000 based QMS implementation in Hong Kong. First they have explained briefly the contents of ISO 9001:2000 standard and their

implications. Except one section, which deals with internal quality audits, all the other sections of the paper deal with the survey of the characteristics of ISO 9000 based QMS. Even though only one section deals with quality audit, the emphasis on the need of internal quality audits for successful maintenance and improvement of the ISO 9000 based QMS, is strongly sensed. Based upon the survey results, they have concluded that QS audit verifies whether the QMS is operational and its procedures are properly followed. In other words, they have hinted that QMS will not exist in absence of QS audit. Van der Wiele and Brown (2002) report the survey carried out in five Australian companies and cited a number of factors impacting the development of quality management over time in these companies. One of the factors is the role of audits and assessments. They have found that all these companies have implemented audits and assessments to assess the gap existing between what is practiced internally and what is required externally. In one company, audits are used as a vehicle for identifying the opportunities for improvement. Particularly, the external audits are used for checking the company’s own system with that of external institutes. These surveys indicate that quality audits are essential and are to be carried out in quality management programmes as the routine exercise aiding to achieve CQI. Routine exercise and reported impacts Kondo (1998) has presented the concept of Hoshin Kanri. The last phase of this quality-management technique is termed as top management internal quality control audit. The main contribution of this paper is the appraisal over the importance of conducting quality audits as routine exercise and resulting impacts. He has presented an example in which he points out that a quality auditor who walked through a powder metallurgy department of a company identified the reason for their high work-in-progress inventory and provided solutions to overcome this deficiency. Thus, quality audits go beyond the process of checking the Quality systems and quality-management techniques. In fact, quality audits identify deficiencies which fall even beyond their scopes and suggest solutions to overcome them. He has also cited the role of quality audit in establishing interaction with all levels of employees. He lists the factors responsible for the conduct of successful audits, which are: (1) announcing the audit team in advance; (2) rotating audit team numbers; and (3) changing the methods of checking. This paper leads to an inference that quality audits are essential while implementing any CQI programme and useful in rectifying deficiencies. Modalities and auditing through standards Bohoris and Mahony (1994) have compared BS 7750 and BS5750 standards, which deal with environmental management and Quality systems, respectively. They have presented audit scheme whose constructs are similar to that of any other certification process. Although the paper deals extensively with the above two standards, the paper does not emphasise upon adopting any exclusive auditing standard for conducting quality and environmental audits. Vinten (1998) traces the history of audits, in particular reference to quality audits, by referring to various surveys. He has pointed

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out that audits have penetrated into various areas including quality, environment, technology, medicine, and finance. Even he has cautioned that today’s organisations are being over audited, which indirectly means that large amount of money and time are invested on audits. In one part, he is critical of internal audit with reference to TQM, but in the other part he has cited that internal auditors respond positively to TQM improvement process. He has concluded the article by stating that the results of quality audits, particularly which are aimed to obtain ISO 9000 certification will have to be judged by the consuming public. In other words, he has indirectly claimed the importance of judging the performance of quality audits using financial metrics. However, he has claimed in one section that achieving suitable benchmarks and performance measures with reference to quality audits would be a problematic task. He has enunciated that this was a priority area for research of “The Royal Society of Arts”. He has not mentioned whether this research has resulted in any model in this regard. Modalities and survey Liu et al. (1997) have described internal auditing and its state of art. They have surveyed nine organisations for estimating the role played by the internal audits in those companies. For this purpose, the benchmark principle adopted in quality engineering field has been used. While concluding, they have emphasised to place internal audit department at high esteem so that employees respect that department. They have insisted on the need of re-engineering and strategically focusing internal auditing procedures. Modalities and reported impacts Meegan and Simpson (1997) have provided a methodology for conducting internal audits and reported the benefits of conducting them in real time environment. Particularly, they have reported that auditors have acquired holistic understanding of quality management and business excellence principles. They have also cited the need of improving the way of conducting internal quality audits. Askey and Dale (1994) have enunciated the modality of conducting internal audits. They have provided the guidelines, which have to be followed during the several stages of management auditing. They have exercised much thrust on management auditing with relevance to quality audits. Though several pages of this paper deal with the modalities of conducting quality audits, few pages, which inform the favourable and unfavourable impacts of conducting quality audits, contribute high quality findings. For example, under one section, they have pointed out the problems encountered during auditing when its goal is not properly focused. On other hand, they have cited that management auditing is a powerful tool when it is properly managed to provide company wide improvement. An important key success factor of the audit programme suggested by them is that it should measure the company’s performance. From this statement and also considering various problems of conducting audits, it can be inferred that a quality-auditing programme itself is required to be measured from its performance point of view. Dow (1994) has recommended a method of conducting audits through the development of audit manual. He has particularly concentrated upon the development of auditors whose performance measures are to be calculated by considering the assignments completed in comparison to the plan, quality and quantity of suggested

recommendations, the time taken to present the report from the actual field study, and turn over of the auditors. Finally, he has hinted that the audits should result in effective management of the organisations. In fact, he has insisted on measuring the performance of audits. But, the metrics he has suggested do not allow the choice of a common scale. Hence, a common measurement scale shall be devised so that uniformity and reality of the audit performance can be measured. Such a scale shall have to provide the results through financial metrics. Survey and reported impact Hawkes and Adams (1995) have reported the survey, carried out using a questionnaire that was mailed to 120 New Zealand manufacturing companies. This survey was aimed to identify the role of internal auditors with regard to the implementation of TQM in manufacturing companies. One of the findings of this survey was that, as the result of implementing TQM, role and responsibility of internal auditors in New Zealand have changed considerably. The new internal auditors of TQM programme have adopted particularly cooperative and participative type of approach. The paper also insists on formalizing internal auditing function by reviewing the skills and educational needs of new auditors. In particular, this paper indirectly hints for changing the quality-auditing profession to suit the CQI exercise. The most interesting contribution of this paper is the spelling out of the statement by Peters. According to this statement, the potential of audit will have to be measured against the money invested to conduct them. This implies that a financial accounting system for measuring the investment and performance of quality audits would be an useful contribution in today’s organisations which are infected by QS standards. Williamson et al. (1996) have reported a survey conducted to assess the QS auditors” attitude using a questionnaire-based survey. They have surveyed the auditors who are working under major certification bodies namely BSI QA, Lloyds Register QA, SGS, Yarsley, Bureau Veritas QI, and NQA. They have reported that the performances of auditors have not varied depending upon the certification bodies under which they work. An intriguing contribution of this paper is the listing of the organisational improvements due to the conduct of quality audits which include improved product quality, reduction of waste, improved service quality, cost reduction, better and more consistent delivery schedules to the customers. This enunciation indicates the varied metrics that should be considered for evaluating quality audits. Prowess of quality audits and the current challenge The elaborate literature mining reported in the previous sections of this paper leads to an indication that researchers recommend the usage of quality audits not only for checking the compatibility of quality systems with the respective standards but also for exercising CQI (Karapetrovic and Willborn 2000a, 2000b, 2001). Besides many researchers working in quality-auditing and its related fields have enumerated benefits other than CQI. For example, Barthelemy and Zairi (1994) have hinted at the following as the gains and objectives of quality audits. . Quality audits are the opportunities to work toward excellence. . Quality audits help the auditors and auditees to understand about the need of theme work.

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.

.

378

.

.

Quality audits are useful in providing advice, new ideas, and help from outside the organisations. Quality audits are required to develop innovations and problem-solving culture, probing challenging and best practice implementation culture. Quality audits should ensure that the organisations are responding to their customer needs and requirements on an everyday basis. Quality audits should help the organisations to improve with competitive aspirations. Quality audit should encourage opennes and inculcate a spirit of co-operation.

Similar to the above indications, Karapetrovic and Willborn (2000a) have suggested the following as the requirements of quality audits: . Quality audits should help the organisations to achieve strategic common goal. (This means that quality audits would serve as a medium to integrate the entire organisations to achieve common goals). . Quality audits should be open and dynamic. . Quality audits should be adaptive. . The objective and criteria of quality audits should be gradually improved with time. This means that there shall be CQI of quality audits. Similar claim is made by Hawkes and Adams (1995) for improving quality audits by applying TQM principles on them. Current direction of research While researchers have confirmed the prowess of quality audits, current research activities progress toward different directions. In one direction, the role of both internal and external quality audits through the adoption of various quality-auditing techniques is examined, whereas in other direction, considerable emphasis is placed on the quality of auditors. For example, Hawkes and Adams (1995) have appraised the important role to be played by the quality auditors in TQM cultured companies. They have listed the characteristics to be acquired by them, as futuristically oriented, historically conscious, participative, facilitative, independent, supportive, catalyst for radical change, and system efficiency focus. Williamson et al. (1996) have conducted the surveys, which indicated the uniformity of the knowledge possessed by quality auditors on quality systems (particularly with reference to ISO 9001:1994) irrespective of their experience and the place of work. Their findings indicate that the knowledge gained by those auditors on quality systems and their improvement is uniform, though they are from different industries including manufacturing, information technology and construction. As indicated under the section, titled “survey and reported impact” of this article, these authors have claimed that auditing is not an end and it should result in key organisational performance improvements. Thus, the researchers emphasise upon developing quality-auditing profession by defining its objectives clearly and identifying the internal quality auditors. The researchers have also stipulated that these internal quality auditors should be appropriately trained and educated so that they follow cooperative and participative approach for supporting CQI journey of TQM programme. Recent researchers have also emphasised upon the need of using

integrated QS auditing standards (Karapetrovic and Willborn 1998b). Hence, contemporary organisations may accept the guidelines of a standard for this purpose. But Beckmerhagen et al. (2003) have claimed that the recently issued ISO 19011 does not envisage the integration of audits for various systems. In this context, suggesting an appropriate standard, which would define the scope of quality audits and quality auditors, is a challenging task for the current researchers working in quality-auditing arena. Means of realizing the prowess of quality audits Although many researchers have established the prowess of quality audits, the literature mining leads to an impression that no concrete system is available to measure and enhance their performance. According to the data presented in Table I, majority of the researchers working in the area of quality audits have been striving to attain the prowess by adopting and evolving various modalities. Amidst this development, the striking aspect that is noticed is the attempt to quantify and measure the performance of quality audits. Particularly, the most recent article by Beckmerhagen et al. (2004) enunciates the importance of measuring the prowess of quality audits. At this juncture, it is to be noted that some authors have tried to cost quality audits. That is, these researchers have taken the path of drawing the attention of managers by pointing out the financial implications of conducting quality audits. This is a very prudent approach because managers are tempted to look for financial benefits of any programme conducted in the organisation. However, the costing approach is inadequate to depict the performance of quality audits through financial metrics. Rather, the information on the performance of quality audits should be depicted in terms of expenditure incurred, income gained, assets created, and liability to be dispersed. This shall be feasible if a financial accounting system for accounting the performance of quality audit is made available to today’s captains of organisations. In other words, a financial accounting system contributing income and expenditure account and balance sheet of quality audits would act as a mechanism to achieve the prowess of quality audits. Conclusion and future focus Quality audits became a matter of discussion after the emanation of ISO 9000 series and their related QS standards. It is a known fact that the certification process of this standard envisages quality audits as one of the integral requirements. The certification to these standards is so intense that it is reported that till the year 2000, as many as three lakhs certifications have been completed throughout the world (Karapetrovic and Willborn, 2000b). Considering this magnitude of certification, the quantum of research works being carried out in quality-auditing arena appears to be minimal. But such few number of researchers” reports lead to important derivations and focus of future works. In this context, the contributions of authors reported in this paper assume special importance. Though the researchers have been moving in varied directions to attain the prowess of quality audits, it is clearly visible that the current research points toward the adoption of a promising international standard and financial measurement mechanism of quality audits. In this context, the consideration of ISO 19011:2002 assumes special importance. Since some authors have expressed concern over the missing imperatives of quality audit in this standard, it is suggested that depending upon their requirements, the contemporary organisations can either adopt to this

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standard or the previous versions of ISO quality-auditing standards namely ISO 10011. Use of ISO 10011 is suggested because the two papers by Askey and Dale (1994) and Karapetrovic and Willborn (1998c), which have referred to ISO 10011, have not cited any deficiencies in it. Another aspect that is required is the development of the system to financially account the performance of quality audits. Though the finding offers impetus for carrying out future research activities, accomplishing this imperative is not going to be an easy task. It is prudent to note that the majority of the outcome of QS audits is reflected in the form of intangible rather than tangible costs, whereas the expenditure incurred to carry out QS audit assumes more tangible forms than intangible cost. In order to balance the tangible and intangible forms, a suitable set of financial conversion models is required. These models are required to convert intangible costs into tangible costs. But it is disappointing to note that no researcher has so far brought out any model that would convert the intangible performance characteristics of quality audits into financial values. At this juncture, it is appropriate to refer to the work of Robinson and Robinson and Lefort (2000) who have adopted a crude method to cost the audits. Since the conversion models for quality audits are the immediate needs, it is recommended that the researchers intending to work in this direction may adopt a crude method for developing those conversion models. The worthiness of those conversion models can be improved in future by conducting case studies and referring to the inferences drawn out of them. Before concluding, this article suggests that the contemporary researchers working in quality-auditing arena shall focus their efforts toward developing a financial accounting system, which shall be linked to an appropriate and unique QS audit standard. This will enable contemporary organisations to realize the importance of QS auditing and conduct them by managing and monitoring their performance so that the results of CQI journey are nourished. References Askey, J.M. and Dale, B.G. (1994), “Internal quality management auditing: an examination”, Managerial Auditing Journal, Vol. 9 No. 4, pp. 3-10. Barthelemy, L. and Zairi, M. (1994), “Making ISO 9000 work: the role of auditing”, The TQM Magazine, Vol. 6 No. 3, pp. 44-7. Beckmerhagen, I.A., Berg, H.P., Karapetrovic, S.V. and Willborn, W.O. (2003), “Auditing in support of the integration of management systems: a case from the nuclear industry”, Managerial Auditing Journal, Vol. 18 Nos 6/7, pp. 560-8. Beckmerhagen, I.A., Berg, H.P., Karapetrovic, S.V. and Willborn, W.O. (2004), “On the effectiveness of quality management system audits”, The TQM Magazine, Vol. 16 No. 1, pp. 14-25. Beecroft, G.D. (1996), “Internal quality audits-obstacles or opportunities”, Training for Quality, Vol. 4 No. 3, pp. 32-4. Berry, E. (1998), “A quality systems model for the management of quality in NSW schools”, Managing Service Quality, Vol. 8 No. 2, pp. 97-111. Besterfield, D.H., Besterfield-Michana, C., Besterfield, G.H. and Besterfield-Sacre, M. (2004), Total Quality Management, Pearson Education (Singapore), New Delhi. Bohoris, G.A. and Mahony, E.O. (1994), “BS 7750, BS 5750 and the EC’s eco management and audit scheme”, Industrial Management & Data Systems, Vol. 94 No. 2, pp. 3-6.

Chapman, A. and Massey, O. (2002), “A catalogue quality audit tool”, Library Management, Vol. 23 Nos 6/7, pp. 314-24. Collingwood, M.P. (1996), “Quality assurance versus the organizational goal-an NHS perspective”, Managing Service Quality, Vol. 6 No. 6, pp. 21-4. Dale, B.G., Boaden, R.J., Wilcox, M. and McQuater, R.E. (1997), “Sustaining total quality management: what are the key issues?”, The TQM Magazine, Vol. 9 No. 5, pp. 372-80. Dow, D. (1994), “Value from audit-audit code of practice-institutional manual”, Quality Assurance in Education, Vol. 2 No. 2, pp. 32-4. Dunk, A.S. (2002), “Product quality, environmental accounting and quality performance”, Accounting, Auditing & Accountability Journal, Vol. 15 No. 5, pp. 710-32. Fa, Z. (1997), “Internal audit developments in the tobacco industry”, Managerial Auditing Journal, Vol. 12 Nos 4/5, pp. 258-62. Gardner, E.R. (1997), “Applying ISO 9000 principles when auditing”, Managerial Auditing Journal, Vol. 12 No. 8, pp. 406-10. Hawkes, L.C. and Adams, M.B. (1995), “Total quality management and the internal audit: empirical evidence”, Managerial Auditing Journal, Vol. 10 No. 1, pp. 31-6. Heath, P. and Milne, D. (2002), “Making quality everyone’s business: a case study of partnership in primary care”, International Journal of Health Care Quality Assurance, Vol. 15 No. 3, pp. 99-105. Ho, S.K.M. (1999), “The 5-S auditing”, Managerial Auditing Journal, Vol. 14 No. 6, pp. 294-301. Karapetrovic, S. (2002), “Strategies for the integration of management systems and standards”, The TQM Magazine, Vol. 14 No. 1, pp. 61-7. Karapetrovic, S. and Willborn, W. (1998a), “Integrated audit of management systems”, International Journal of Quality & Reliability Management, Vol. 16 No. 7, pp. 694-711. Karapetrovic, S. and Willborn, W. (1998b), “Integration of quality and environmental management systems”, The TQM Magazine, Vol. 10 No. 3, pp. 204-13. Karapetrovic, S. and Willborn, W. (1998c), “The system’s view for clarification of quality vocabulary”, International Journal of Quality & Reliability Management, Vol. 15 No. 1, pp. 99-120. Karapetrovic, S. and Willborn, W. (2000a), “Quality assurance and effectiveness of audit systems”, International Journal of Quality & Reliability Management, Vol. 17 No. 6, pp. 679-703. Karapetrovic, S. and Willborn, W. (2000b), “Generic audit of management systems: fundamentals”, Managerial Auditing Journal, Vol. 15 No. 6, pp. 279-94. Karapetrovic, S. and Willborn, W. (2001), “Audit and self-assessment in quality management: comparison and compatibility”, Managerial Auditing Journal, Vol. 16 No. 6, pp. 366-77. Karapetrovic, S. and Willborn, W. (2002), “Self-audit of process performance”, International Journal of Quality & Reliability Management, Vol. 19 No. 1, pp. 24-45. Kondo, Y. (1998), “Hoshin Kanri-a participate way of quality management in Japan”, The TQM Magazine, Vol. 10 No. 6, pp. 425-31. Lawrence, L., Andrews, D., Ralph, B. and France, C. (2002), “Identifying and assessing environmental impacts: investigating ISO 14001 approaches”, The TQM Magazine, Vol. 14 No. 1, pp. 43-50. Lee, S.F., Roberts, P. and Lau, W.S. (1999), “Survey on ISO 9000 quality management system implementation in Hong Kong”, Managerial Auditing Journal, Vol. 14 Nos 1/2, pp. 79-88.

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Liu, J., Woo, H.S. and Boakye-Bonsu, V. (1997), “Developing internal auditing procedures in UK organisations using a benchmarking approach”, Managerial Auditing Journal, Vol. 12 No. 9, pp. 464-78. Marshall, G.H. (2002), “The Scottish quality management system: an interim evaluation”, Managerial Auditing Journal, Vol. 17 No. 5, pp. 251-60. Meegan, S.T. and Simpson, R. (1997), “Progressive roles of the internal audit function: a case study of BTNI”, Managerial Auditing Journal, Vol. 12 No. 8, pp. 395-9. Motwani, J., Kumar, A. and Cheng, C.H. (1996), “A roadmap to implementing ISO 9000”, International Journal of Quality & Reliability Management, Vol. 13 No. 1, pp. 72-83. Muthu, S., Devadasan, S.R., Mendonca, P.S. and Sundararaj, G. (2001), “Pre-auditing through a knowledge base system for successful implementation of a QS 9000 based maintenance quality system”, Journal of Quality in Maintenance Engineering, Vol. 7 No. 2, pp. 90-103. Ni, Z. and Karapetrovic, S. (2003), “Perennial self-audit: model and applications”, Managerial Auditing Journal, Vol. 18 No. 5, pp. 363-73. Ovretveit, J.A. (1993), “Auditing and awards for service quality”, International Journal of Service Industry Management, Vol. 4 No. 2, pp. 74-84. Pennebaker, D. and Vogels, R. (2002), “A mens’ meeting place: quality and service effectiveness”, International Journal of Health Care Quality Assurance, Vol. 15 No. 1, pp. 17-24. Peters, J. (1998), “Some thoughts on auditing”, The TQM Magazine, Vol. 10 No. 1, pp. 4-5. Rippin, A., White, J. and Marsh, P. (1994), “From quality assessment to quality enhancement”, Quality Assurance in Education, Vol. 2 No. 1, pp. 13-20. Rissanen, V. (2000), “Quality system based on the standard SFS-EN ISO 9002 in Kuopio University hospital”, International Journal of Health Care Quality Assurance, Vol. 13 No. 6, pp. 266-72. Robinson, M.B. (1995), “Economic evaluation of quality assurance programmes”, International Journal of Health Care Quality Assurance, Vol. 8 No. 5, pp. 8-12. Robinson, J. and Lefort (2000), “Costing clinical audit: preparing for clinical governance”, International Journal of Health Care Quality Assurance, Vol. 13 No. 3, pp. 111-7. Smith, S., Tranfield, D., Foster, M. and Whittle, S. (1994), “Strategies for managing TQ agenda”, International Journal of Operations & Production Management, Vol. 14 No. 1, pp. 75-88. Tsim, Y.C., Yeung, V.W.S. and Leung, E.T.C. (2002), “An adaptation to ISO 9001:2000 for certified organizations”, Managerial Auditing Journal, Vol. 17 No. 5, pp. 245-50. Van der Wiele, T. and Brown, A. (2002), “ Quality management over a decade”, International Journal of Quality & Reliability Management, Vol. 19 No. 5, pp. 508-23. Vinten, G. (1994), “The behavioral aspects of quality assurance”, Quality Assurance in Education, Vol. 2 No. 1, pp. 4-12. Vinten, G. (1998), “The competition for quality in the audit society”, Managing Service Quality, Vol. 8 No. 6, pp. 389-94. Wharton, C.L. (1997), “Auditing: a slapped wrist or a helping hand?”, Training for Quality, Vol. 5 No. 3, pp. 116-20. Williamson, A., Rogerson, J.H. and Vella, A.D. (1996), “Quality system auditors attitudes and methods: a survey”, International Journal of Quality & Reliability Management, Vol. 13 No. 8, pp. 30-62. Yun, C.Z. and Hou, T.B. (1997), “A PC-based system for benchmarking quality management via ISO 9000 auditing”, Benchmarking for Quality Management & Technology, Vol. 4 No. 3, pp. 213-20.

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Interactive organizational commitment and hardiness in public accountants’ turnover Daniel W. Law

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School of Business Administration, Gonzaga University, Spokane, Washington, USA Abstract Purpose – The overall purpose of the study is to build upon and add to a turnover model for public accounting. This study examines two components of organizational commitment, affective and continuance, and attempts to reconcile mixed results found in prior studies. An interaction of the two components and the personality trait of hardiness are explored. Design/methodology/approach – One hundred and twenty-eight public accountants from three firms participated in the study by completing self-report questionnaires. Established scales for the variables of interest were employed, and OLS regression was used to test hypotheses. Findings – The results indicate that affective commitment is the most salient component of commitment in predicting turnover, but an interaction of continuance and affective commitment is also significant. The results also indicate that hardiness is a significant personality variable in predicting turnover. Research limitations/implications – Generalizability of results may be limited as participation was limited to three firms. Theoretical implications include establishing the relative saliency of the commitment components to turnover in public accountants and building the turnover model by adding a commitment interaction and personality hardiness. Practical implications – Management of public accounting firms can better focus on strategy to emotionally attach individuals to a firm and prevent undesirable turnover. To better assist recruiters in hiring, firms can incorporate hardiness into its pre-hire fit assessment to gauge compatibility. Originality/value – In addition to clarifying results from prior studies, this paper introduces interactive commitment and personality hardiness to a model of public accounting turnover. Keywords Public sector accounting, Employee turnover, Organizational analysis Paper type Research paper

Introduction The profession of public accounting experiences a substantial turnover rate (Connor et al., 1999). Although some turnover is expected, substantial turnover translates into undesirable higher costs and efficiency losses; large accounting firms typically incur significant recruitment and training costs for new hires (Hiltebeitel et al., 2000). As public accountants leave the profession, subsequent employers, not the firms themselves, often realize many of the benefits of these costs. To better understand the antecedents of turnover in public accounting, a number of researchers have conducted studies examining the link between organizational commitment and turnover (Stallworth, 2003; Ketchand and Strawser, 1998; Kalbers and Fogarty, 1995). Collectively, these studies have demonstrated the pervasive effects of organizational commitment on turnover intentions in the public accounting sector. Individually, the studies have examined the multidimensionality of the commitment

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construct relative to turnover in an effort to better understand what kind of commitment is most salient to public accounting turnover. Results have been mixed and, in two of the studies, results are opposite of each other. The current study follows these studies by examining two salient dimensions of the organizational commitment construct on intent to turnover in public accountants. This study also introduces personality as a potential individual antecedent to intent to turnover in public accounting. The study contributes to the literature by building on prior models of public accounting turnover. Specifically, the study adds an interactive organizational commitment variable into the model. This approach follows compelling research results found in a non-accounting study. In addition, the study explores the relationship between the personality variable of hardiness and intent to turnover in public accountants. Results in both accounting and non-accounting studies suggest that hardiness may be extremely significant in predicting job well being and outcomes. Finally, the study helps solidify prior results of accounting researchers regarding commitment dimensions and turnover. These contributions have both theoretical and practical implications. Theoretically, the presence of a significant interactive commitment variable may help explain opposing results in prior studies and improve the overall model fit. From a practical standpoint, a better understanding of commitment dynamics within the profession may help firm management in hiring and retaining skilled accountants. Related to this, if hardiness is shown to impact turnover, personality profiles (now employed among some firms in placement decisions) may be significantly improved and expanded with the addition of a hardiness scale. The remainder of the paper is organized as follows: first, a review of the relevant research in organizational commitment, hardiness, and turnover is presented, along with hypotheses of interest. Second, the study’s methodology and sample are described. Next, the results of testing the hypotheses are presented. Finally, the study’s results, limitations, and implications are discussed. Literature review and hypotheses Organizational commitment has consistently been viewed as an important antecedent to employee retention (Mowday et al., 1982). Organizational commitment has been operationalized into three components: affective, continuance, and normative (Meyer and Allen, 1991). Affective commitment is defined as an emotional attachment to an organization characterized by the acceptance of the organization’s values and by a willingness to remain with the organization (Mowday et al., 1982). Continuance commitment reflects a commitment to an organization because of perceived sunk costs (Somers, 1995). Additional research has identified two possible sub-dimensions – personal sacrifice and perceived lack of employment alternatives – within continuance commitment (McGee and Ford, 1987; Meyer et al., 1989, 1990; Dunham et al., 1994). Normative commitment is defined as a perceived duty to support the organization (Wiener, 1982). Meyer and Allen’s (1991) model, which synthesized these three primary components into an overall measure of organizational commitment, has guided most of the commitment research. Relative to the current study, an inverse relationship between organizational commitment and turnover has consistently been identified in

non-accounting studies (Allen, 1996; Teft and Meyer, 1993; Angle and Perry, 1981). Mathieu and Zajac (1990) examined a number of commitment studies and determined that, of the three components of commitment, affective commitment is the most salient in predicting intent to turnover. Subsequent other non-accounting studies yielded similar results (Hackett et al., 1994; Meyer et al., 1993). Although affective commitment appears to be the dominant component relative to turnover generally, the findings from commitment and turnover studies within the domain of public accounting have been somewhat mixed. Kalbers and Fogarty (1995) found a significant inverse relationship between continuance commitment and intent to turnover in public accountants. Further, they found no relationship between affective commmitment and intent to turnover. Conversely, following the results of most non-accounting studies, Ketchand and Strawser (1998) found a significant relationship between affective commitment and intent to turnover in public accountants. Similarly, Stallworth (2003) recently found affective commitment to be the most descriptive (of the three components) in its association with intent to turnover in public accounting. The results of these accounting studies suggest that both continuance and affective commitment may play an important role in turnover. Overall, the results follow largely the results of other non-accounting studies: affective commitment appears to be the dominant component in predicting turnover. However, continuance commitment, in one study, was revealed as the most salient component. One of the purposes of the current study is to revisit this issue in an attempt to better understand the commitment construct in the area of public accounting turnover. Similar to the findings of most researchers, Somers (1995), in a study looking at all three components of commitment, found only affective commitment to be a consistent predictor of turnover. However, in his sample of nurses, he did find that continuance commitment interacted with affective commitment in predicting job withdrawal intentions. Specifically, high levels of continuance commitment tempered the association between affective commitment and intent to remain. As to a possible explanation of this interaction, Somers discussed the self-justification hypothesis. Relative to commitment and turnover, the self-justification hypothesis posits that limited mobility resulting from high sunk costs is rationalized with perceived increased affective attachment to an employer to diminish feelings that one is “stuck” (Meyer et al., 1990). In other words, high levels of continuance commitment can sufficiently impact a worker’s emotional attachment to an organization; therefore, some of the affective commitment is based on rationalization. These results, along with the somewhat mixed results from the public accounting studies in this area, provide the basis for the following hypotheses: H1a. Affective commitment is inversely related to turnover intentions of public accountants. H1b. Continuance commitment is inversely related to turnover intentions of public accountants. H1c. Continuance commitment interacts with affective commitment in predicting turnover intentions of public accountants.

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Personality traits generally remain constant over time (Maslach et al., 2001; Spector and O’Connell, 1994), suggesting that individuals cannot simply change their personalities in an effort to “feel” any less the desire to leave the organization. Of interest relative to the current study, a public accountant’s turnover intentions may, to some degree, be attributed to personality. A review of the literature reveals that little research has been done examining personality effects on commitment or turnover in public accounting. Troutman et al. (2000) examined a limited number of personality traits among public accountants in an attempt to discover causes of turnover. The results were somewhat mixed and largely turned on gender, not personality. However, an early personality study of accounting students provides some direction as to what specific personality traits may affect commitment and turnover. Dinius and McIntyre (1979) developed a personality battery for accountants using accounting majors as proxies. The results of the study suggest that personality traits found in accounting majors include many that relate to the personality trait of hardiness. For example, the authors noted persistence, conscientious attitude, and flexibility as key personality traits of accounting students. These are characteristic of the three components of hardiness – commitment, control, and challenge. The construct of personality hardiness, at the time of the study, was just emerging in the psychology literature (Kobasa, 1979). The study, however, does provide some early evidence that hardiness may be important to the successful accountant, as the personality traits of accounting students are virtually indistinguishable from professional accountants (Laribee, 1994). Maddi and Kobasa (1984) define hardiness as “a general sense that the environment is satisfying”, (p. 50) which leads a person to approach life experiences with curiosity and enthusiasm or commitment. Hardiness represents an integration of three closely interrelated factors – commitment, control, and challenge. Through cognitive appraisal, a hardy person perceives potentially stressful situations as meaningful and interesting (commitment), sees stressors as changeable (control), and views change as a normal part of life and an opportunity for personal growth instead of a threat (challenge). Law et al. (n.d.) found hardiness to be inversely related to job exhaustion – an established antecedent of turnover – in a sample of public accountants. Further, the commitment component of hardiness was the most significant component in the study relative to job exhaustion. The results of this study and those of Dinius and McIntyre (1979), along with the unique commitment component within personality hardiness, suggest that hardiness may be inversely related to turnover in public accounting. H2. Hardiness is inversely related to turnover intentions of public accountants.

Methodology The foregoing hypotheses were tested using ordinary-least-squares (OLS) regression. For the number and type (i.e. interaction term) of predictors and sample size in the current study, OLS is the most appropriate regression method in yielding unbiased regression parameters (Nunnally and Bernstein, 1994).

Sample An appropriate sample of public accountants was acquired from two multi-office regional firms and from a single office of a large international firm. All of the subjects were based in the Pacific Northwest of the United States, and the project was approved by the relative institutional review board for the study of human subjects. A representative from each of the firms requested that the self-report research instruments be mailed in bulk to them. Participation was not randomised as all firms agreed to a predetermined limit of participants, and the representatives distributed the surveys independent of the researcher. The representative from the smaller regional firm, however, indicated that, firm wide, most of the public accountant employees did receive a survey. Respondents were assured that their participation was voluntary and that responses would remain totally anonymous. Pre-stamped, pre-addressed envelopes were included for the convenience of both subject and researcher. A high proportion of all the responses was received during a short time window of approximately two weeks. Much of the data were collected during an unprecedented period in the history of the profession. During this time, public accounting scandals (e.g. Enron/Arthur Andersen) rocked the nation and, consequently, the profession was under close scrutiny and experiencing change and upheaval relative to attestation services (Foxnews, 2002; Herhold, 2002; Sunspot, 2002). These circumstances most likely affected data collection. Just after the busy season in 2002, 112 questionnaires were distributed to public accountants of a small, local regional firm, and 75 were returned for a response rate of 67 percent, indicating a good response rate for survey data (Babbie, 1990). At the same time, from the international firm, 16 questionnaires were returned from 50 distributed for a response rate of 32 percent. This lower response rate was expected due to complications stemming from the legal problems associated with the timing of data collection. Specifically, the international firm was in the process of purchasing a significant portion of another firm and indicated that this would limit the availability of time and/or individuals to participate. This purchase was unexpected. Another large regional firm provided subjects for the study; however, these were acquired more than a year later during November and December. Of the 90 surveys distributed, 40 were returned for a response rate of 44 percent. The overall response rate of 52 percent is adequate and suggests that non-response bias is not a concern (Babbie, 1990). Of the 131 returned, a careful scrutiny of the data indicated that three respondents from one of the regional firms failed to reply to significant blocks of items rendering these unusable for use in hypotheses testing. As such, these were removed leaving a final testable sample consisting of 128 public accountants (72 and 40 from the two regional firms and 16 from the international firm). This sample size is adequate for statistical testing (Kleinbaum et al., 1988). Demographically, the sample was almost evenly split between men and women (48 and 52 percent respectively), and 83 percent of the respondents were married; the average age of the sample was 35. Although each firm uses a different ranking scheme, analyses revealed that 43 percent of the sample were from the staff and senior ranks, while only 6 percent were partners. The rest (approximately half) were supervisors and managers. All available sectors of public accounting (auditing, tax, consulting) were represented, but most professionals indicated specializing in tax and audit with tax being the dominant of these.

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Measures Affective commitment and continuance commitment were measured by widely used and accepted scales developed by Allen and Meyer (1990) and modified by Meyer et al. (1993). Allen and Meyer’s (1996) review of studies employing their scale reports that both exploratory and factor analyses validate that these two types of commitment represent separate factors and have been stable over time. Seven-point Likert scales with statements gauging the two factors of organizational commitment are anchored with endpoints of “strongly agree” and “strongly disagree.” In the current study, reliability estimates were high for both affective and continuance commitment (Cronbach’s a: 0.91 and 0.85, respectively) (Nunnally and Bernstein, 1994). A scale modified from Kobasa’s (1979) measure was employed to assess hardiness (Bartone et al., 1989). All three closely related dispositional tendencies of hardiness (commitment, challenge, and control) are measured using a scale consisting of 30 items. Respondents were asked to describe themselves using a four-point scale with endpoints of “not at all true” and “completely true.” The modified scale demonstrated adequate internal reliability (Cronbach’s a: 0.75) (Nunnally and Bernstein, 1994). Despite the temptation to separately examine each hardiness component as its own construct, independent treatment of the three factors of hardiness risks obscuring what is apparently a complex, nonreducible phenomenon (Maddi et al., 1987). Indeed, most authors have increasingly treated hardiness as unitary (Funk, 1992), and researchers argue that hardiness components may be studied separately only when the strength of their relationships to an outcome variable exceed the strength of the relationship between overall hardiness and the outcome variable (Carver, 1989; Funk, 1992). Consistent with this approach, the construct in the current study was treated as a unitary construct. To measure turnover intention, public accountants were asked to indicate how long they would like to remain with their firm by choosing from five possible responses: not more than 1 year, 1-3 more years, 4-6 more years, 7-10 more years, until I retire. Results Mean and standard deviations for the independent model variables are presented in Table I, and Table II presents a correlation matrix of all relevant model variables. Affective organizational commitment and hardiness are inversely correlated with intent to turnover; continuance commitment is not correlated to intent to turnover. This follows Stallworth (2003) in that affective commitment appears to be the dominant component of organizational commitment in public accountants. Among independent variables, hardiness is positively correlated with affective organizational commitment and inversely correlated with continuance organizational commitment. This inverse relationship between continuance commitment and personality hardiness is somewhat surprising and may suggest that an accountant with low levels of hardiness may feel “stuck” in working for the firm due to perceived financial and personal sunk costs. Variable

Table I. Descriptive statistics for independent variables

Affective organizational commitment (AOC) (1-7) Continuance organizational commitment (COC) (1-7) Hardiness (HAR) (1-4) Notes: n ¼ 128; the independent variables are the range of responses

Mean

SD

4.40 3.93 3.00

1.34 1.23 0.23

Table III presents regression statistics for the hypothesized model. Overall the model is significant and demonstrates quality in terms of goodness-of-fit (Maths, 2003). To test each hypothesis, each variable of interest in the model must be examined individually, holding all other variables constant. Center-score regression was utilized to correct for potential multi-collinearity due to the interaction term in the model (Aiken and West, 1991; Chass, 2003; Seamonkey, 2003). Variance inflation factors (VIFs) indicated that multi-collinearity was not a concern (Neter et al., 1996).

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H1a. asserts an inverse relationship between affective commitment and intent to turnover in public accountants. This hypothesis is strongly supported. This mirrors results found in other studies using accountants (Stallworth, 2003; Ketchand and Strawser, 1998) and establishes the saliency of the construct relative to turnover in accountants. H1b. predicts an inverse relationship between continuance commitment and intent to turnover. This hypothesis is not supported. Recall that Kalbers and Fogarty (1995) found this relationship in their study, but they also found no relationship between affective commitment and intent to turnover. Overall, an examination of the results of the current study in the context of the results found in the other accounting and non-accounting studies suggests that affective commitment appears to be more salient in predicting intent to turnover than continuance commitment.

INT AOC COC HAR

INT

AOC

COC

HAR

1.00 2 0.66 (,0.0001) 0.03 (0.7348) 2 0.37 (,0.0001)

1.00 2 0.11 (0.2184) 0.30 (0.0006)

1.00 20.28 (0.0012)

1.00

Notes: n ¼ 128; INT is Intent to turnover; AOC is Affective organizational commitment; COC is Continuance organizational commitment; HAR is Hardiness

Predictor

Coefficient

Std. error

Intercept 6.79129 AOC 20.68428 COC 20.10055 HAR 21.38219 AOC*COC 0.13109 Analysis of variance Source DF Model 4 Error 121 Total 125

1.39821 0.07903 0.08364 0.46546 0.06255 SS 145.247 148.912 294.159

t-statistic

p-value

VIF

4.86 28.66 21.20 22.97 2.10

, 0.0001 , 0.0001 0.2316 0.0036 0.0382

0 1.12289 1.10027 1.19770 1.01912

MS 36.312 1.231

F-statistic 29.51

Table II. Correlations ( p-values) among model variables

p-value , 0.0001

Notes: INT ¼ 20:68AOC 2 0:10COC 2 1:38HAR þ 0:13AOC* COC (INT is Intent to turnover, AOC is Affective organizational commitment, COC is Continuance organizational commitment, and HAR is Hardiness); R 2 ¼ 49:38 percent R 2 ðadjustedÞ ¼ 47:70 percent

Table III. Regression statistics of hypothesized model

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H1c. posits an interactive effect of affective and continuance commitment in predicting turnover intentions in public accountants. This hypothesis follows the results of Somers (1995) where this interaction was found to be significant in a sample of nurses. Similar to that study, H1c is supported here in a sample of public accountants. The reason for this interaction is yet unclear; however, similar to Somers’ (1995) assertion, a high level of continuance commitment may help a public accountant rationalize an emotional, affective attachment to an organization. In H2, hardiness, a personality trait with ties to commitment, was expected to be inversely related to intent to turnover. The regression results strongly support this hypothesis. A hardy public accountant appears to be committed, in control, and up to the challenge in facing the rigors of the profession and remaining with the firm. Limitations and implications As with all experiments utilizing survey data, the potential for common-method bias relative to self-report measures is always present (Spector, 1987). Further, the study utilized a small sample, although the number of respondents was more than adequate to test the hypotheses; sample bias was also mitigated by adequate response rates. Another possible limitation is generalizability of the results to the profession at large; three accounting firms with offices in the Northwest area of the United States participated in the study. This study contributes to the accounting research literature by improving upon and adding to a model predicting turnover in public accountants. Prior commitment studies in the profession reported mixed results as to the relative importance of affective and continuance commitment in predicting turnover. The current study solidifies the assertion that affective commitment by itself is more salient than continuance commitment in its effect on turnover intentions. However, the study adds another dimension to the model by demonstrating that continuance commitment plays a role in turnover, but only as it interacts with affective commitment. As already discussed, this interaction may be due to the self-justification hypothesis where high-perceived sunk costs enable accountants to develop an emotional attachment to a firm. Other reasons for the interaction may involve firm demographics. Gender, age, marital status, and firm rank were each included separately in the hypothesized model to explore the individual effects of these variables on the model’s parameters. Gender and age were not significant and added essentially nothing to the model; the results remained the same. Interestingly, however, marital status and rank individually affected the interaction parameter when added individually to the model. Not surprisingly, rank was inversely and marginally significant ðp ¼ 0:09Þ in predicting intent to turnover. Of interest, the status of being married was inversely related to turnover intent ðp ¼ 0:02Þ: Even more interesting, both rank and marital status appeared to nullify the significance of the interaction of continuance and affective commitment on intent to turnover ( p ¼ 0:11 and p ¼ 0:14, respectively). Apparently, marital status and rank are individually salient to intent to turnover, and their presence in a turnover model renders any effect of continuance commitment a non-issue. A further addition to the public accounting turnover model is the personality variable of hardiness. The results of this study suggest that this trait may be important

to an individual in building a long and successful career in the profession. Specifically, the results support the notion that the trait’s components of commitment, control, and challenge are key to assisting public accountants adapt to and even embrace the unique work culture and environment found in public accounting. From a practical standpoint, a better theoretical model of turnover may prove beneficial to firm management in its recruiting and retention efforts. By understanding that affective commitment is most important in retention, management can focus on firm strategy that will effectively attach individuals to the firm. This emotional attachment should result in less turnover with its attendant high costs. Further, in addition to utilizing important selection criteria such as academic performance, work experience, and interpersonal skills, recruiters may be able to assess a candidate’s level of hardiness as an additional measure of compatibility. Additional studies in this area should focus on improving the model by examining the effects of both environmental and personal antecedents of turnover in public accounting. For example, role stressors, mentoring culture, organizational justice, and workload could be added to a model including commitment and hardiness to help build a more inclusive model and see the relative effects of these variables on public accounting turnover. Further, intermediate, yet related, outcomes such as job burnout or job stress could be included in the model to better establish causality among variables. References Aiken, L.S. and West, S.G. (1991), Multiple Regression: Testing and Interpreting Interactions, Sage, Newbury Park, CA. Allen, M.W. (1996), “The relationship between communication, affect, job alternatives and voluntary turnover intentions”, Southern Communication Journal, Vol. 61, pp. 34-43. Allen, N.J. and Meyer, J.P. (1990), “The measurement and antecedents of affective, continuance, and normative commitment to the organization”, Journal of Occupational Psychology, Vol. 63, pp. 1-18. Allen, N.J. and Meyer, J.P. (1996), “Affective, continuance, and normative commitment to the organization: an examination of construct validity”, Journal of Vocational Behavior, Vol. 49 No. 3, pp. 252-76. Angle, H. and Perry, J. (1981), “An empirical assessment of organizational commitment and organizational effectiveness”, Administrative Science Quarterly, Vol. 26, pp. 1-14. Babbie, E. (1990), Survey Research Methods, 2nd ed., Wadsworth, Belmont, CA. Bartone, P.T., Ursano, R.J., Wright, K.M. and Ingraham, L.H. (1989), “The impact of a military air disaster on the health of assistance workers”, The Journal of Nervous and Mental Diseases, Vol. 177 No. 6, pp. 317-28. Carver, C.S. (1989), “How should multifaceted personality constructs be tested? Issues illustrated by self-monitoring, attributional style, and hardiness”, Journal of Personality and Social Psychology, Vol. 56, pp. 577-85. Chass.ncsu.edu (2003), “What can be done to handle multicollinearity?”, available at: www2. chass.nscu.edu/garson/pa765/regress.htm#multicol Connor, M., Hooks, K. and McGuire, T. (1999), “Gaining legitimacy for flexible work arrangements and career paths: the business case for public accounting and professional services firms”, in Parasuraman, S. and Greenhaus, J.H. (Eds), Integrating Work and

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Family: Challenges and Choices for a Changing World, Quorum Books, Westport, CT, pp. 154-66. Dinius, S.H. and McIntyre, S.C. (1979), “Development and utilization of a personality battery for accountants”, Psychological Reports, Vol. 44 No. 1, pp. 43-53. Dunham, R.B., Grube, J.A. and Castaneda, M.B. (1994), “Organizational commitment: the utility of an integrative definition”, Journal of Applied Psychology, Vol. 79, pp. 370-80. Foxnews.com (2002), “Andersen, feds close to settlement”, (reported April 11, 2002 by Reuters), available at: www.foxnews.com/printer_friendly_story/0,3566,50127,00.html Funk, S.C. (1992), “Hardiness: a review of theory and research”, Health Psychology, Vol. 11 No. 5, pp. 335-45. Hackett, R.D., Bycio, P. and Hausdorf, P.A. (1994), “Further assessments of Meyer and Allen’s (1991) three-component model of organizational commitment”, Journal of Applied Psychology, Vol. 79, pp. 15-23. Herhold, S. (2002), “Corporate America confesses: time was, getting companies to disclose their secrets was like pulling teeth. Post-Enron, we can’t get companies to stop disclosing”, available at: www.business2.com/articles/magPrint/0,1643,39398,00.html Hiltebeitel, K.M., Leauby, B.A. and Larkin, J.M. (2000), “Job satisfaction among entry-level accountants”, The CPA Journal, Vol. LXX No. 5, pp. 76-8. Kalbers, L.B. and Fogarty, T.J. (1995), “Professionalism and its consequences: a study of internal auditors”, Auditing: A Journal of Theory and Practice, Vol. 14 No. 1, pp. 64-86. Ketchand, A.A. and Strawser, J.R. (1998), “The existence of multiple measures of organizational commitment and experience – related differences in a public accounting setting”, Behavioral Research in Accounting, Vol. 10, pp. 109-37. Kleinbaum, D.G., Kupper, L.L. and Muller, K.E. (1988), Applied Regression Analysis and Other Multivariable Methods, 2nd ed., PWS-Kent, Boston, MA. Kobasa, S.C. (1979), “Stressful life events, personality, and health: an inquiry into hardiness”, Journal of Personality and Social Psychology, Vol. 37, pp. 1-11. Laribee, S.F. (1994), “The psychological types of college accounting students”, Journal of Psychological Type, Vol. 28, pp. 37-42. Law, D., Sweeney, J. and Summers, S. (n.d.), “An examination of personality traits as mediators of exhaustion in public accounting”, working paper. McGee, G. and Ford, R. (1987), “Two (or more) dimensions of organizational commitment: reexamination of the affective and continuance commitment scales”, Journal of Applied Psychology, Vol. 72, pp. 638-41. Maddi, S.R. and Kobasa, S.C. (1984), Hardy Executive: Health Under Stress, Dow Jones-Irwin, Homewood, IL. Maddi, S.R., Bartone, P.T. and Puccetti, M.C. (1987), “Stressful events are indeed a factor in physical illness: reply to Schroeder and Costa (1984)”, Journal of Personality and Social Psychology, Vol. 52, pp. 833-43. Maslach, C., Schaufeli, W. and Leiter, M. (2001), “Job burnout”, Annual Review of Psychology, Vol. 52, pp. 397-422. Mathieu, J. and Zajac, D. (1990), “A review and meta-analysis of the antecedents, correlates and outcomes of organizational commitment”, Psychological Bulletin, Vol. 108, pp. 171-94. Maths (2003), “Multiple regression”, available at: www.maths.ex.ac.uk/, jph/psy60101/ multreg1.html

Meyer, J. and Allen, N. (1991), “A three component conceptualization of organizational commitment”, Human Resource Management Review, Vol. 1, pp. 61-89. Meyer, J., Allen, N. and Gellatly, I. (1990), “Affective and continuance commitment to the organization: evaluation of measures and analysis of concurrent and time-lagged relations”, Journal of Applied Psychology, Vol. 75, pp. 710-20. Meyer, J., Allen, N. and Smith, C. (1993), “Commitment to organizations and occupations: extension and test of a three component conceptualization”, Journal of Applied Psychology, Vol. 78, pp. 538-51. Meyer, J., Paunonen, S., Gellatly, I., Goffin, I. and Jackson, D. (1989), “Organizational commitment and job performance: it’s the nature of the commitment that counts”, Journal of Applied Psychology, Vol. 74, pp. 152-6. Mowday, R., Steers, R. and Porter, L. (1982), Employee Organization Linkages, Academic Press, New York, NY. Neter, J., Kutner, M.H., Nachtsheim, C.J. and Wasserman, W. (1996), Applied Linear Statistical Models, 4th ed., Irwin, Chicago, IL. Nunnally, J.C. and Bernstein, I.H. (1994), Psychometric Theory, 3rd ed., McGraw-Hill, New York, NY. Seamonkey.ed.asu.edu (2003), “Center-score regression”, available at: http://seamonkey.ed.asu. edu/, alex/computer/sas/s_regression.html Somers, M.J. (1995), “Organizational commitment, turnover and absenteeism: an examination of direct and interaction effects”, Journal of Organizational Behavior, Vol. 16, pp. 49-58. Spector, P.E. (1987), “Method variance as an artifact in self-reported affect and perceptions at work: myth or significant problem?”, Journal of Applied Psychology, Vol. 72, pp. 438-43. Spector, P.E. and O’Connell, B.J. (1994), “The contribution of personality traits, negative affectivity, locus of control and Type A to the subsequent reports of job stressors and job strains”, Journal of Occupational and Organizational Psychology, Vol. 67, pp. 1-11. Stallworth, H.L. (2003), “Mentoring, organizational commitment and intentions to leave public accounting”, Managerial Auditing Journal, Vol. 18 No. 5, pp. 405-19. Sunspot.net (2002), “Andersen loses last big client: aquila drops auditor as ex-partners help form consulting group”, (reported May 22, 2002 by Associated Press), available at: www. sunspot.net/templates/misc/printstory.jsp?slug¼bal%2Dbz%2Eandersen22may22 Teft, R. and Meyer, J. (1993), “Job satisfaction, organizational commitment, turnover intention and turnover: path analyses based on meta-analytic findings”, Personnel Psychology, Vol. 66, pp. 259-93. Troutman, C.S., Burke, K.G. and Beeler, J.D. (2000), “The effects of self-efficacy, assertiveness, stress, and gender on intention to turnover in public accounting”, Journal of Applied Business Research, Vol. 16 No. 3, pp. 63-74. Wiener, Y. (1982), “Commitment in organizations: a normative view”, Academy of Management Review, Vol. 7, pp. 418-28.

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Implementing integration of ISO 9001 and ISO 14001 for construction

394

S.X. Zeng and P. Tian Aetna School of Management, Shanghai Jiaotong University, Shanghai, People’s Republic of China, and

Jonathan J. Shi Department of Civil and Architectural Engineering, Illinois Institute of Technology, Chicago, Illinois, USA Abstract Purpose – The aim of this study is to evaluate implementation of an integrated management system (IMS) based ISO 9001 and ISO 14001 standards for construction firms. Design/methodology/approach – Supported by a structured questionnaire survey, this paper examines several related issues in the implementation of IMS in construction firms in China. The researchers interviewed the auditors of ISO 9001 and ISO 14001 standards and senior managers of ten construction firms. The structured questionnaires were sent to 300 construction firms in China. Among them, 68 completed questionnaires were received. Findings – The findings reveal that a majority of the firms support an integration of the ISO 9001 and ISO 14001 standards. “Similarity” and “compatibility” between the two standards are considered as the main reasons for pursuing such an integration. The benefits resulted from the integration include “avoidance duplication of procedures”, “reduced conflict of procedures”, and “reduced requirements for resources”. The research also finds that organizations need technical guidance and support from certifying bodies to complete the integration. Practical implications – Proposes some useful suggestion for the contractors which are implementing (or will implement) both ISO 9001 and ISO 14001 standards. Originality/value – It provides a possible solution by IMS with combining ISO 9001 and ISO 14001 for the contractors which are implementing (or will implement) both ISO 9001 and ISO 14001 standards. The IMS could help the contractors to overcome the challenges faced by them and achieve continual improvement. Keywords ISO 9000 series, Management information systems, Construction industry, Continuous improvement Paper type Technical paper

Managerial Auditing Journal Vol. 20 No. 4, 2005 pp. 394-407 q Emerald Group Publishing Limited 0268-6902 DOI 10.1108/02686900510592070

Introduction Since the International Organization for Standardization (ISO) issued the ISO 9000 series standards in 1987, the quality systems based on the ISO 9000 international standards have been extensively adopted worldwide (Yates and Aniftos, 1997; Chin and Choi, 2003). These standards are designed with generic documents outlining minimum requirements for quality systems of organizations in all industries (Hoyle, 1996). However, quality does not rest only with organization’s products and services. Establishing a quality assurance system that complies with the ISO 9000 standards is just an important first step in achieving excellence (Renfrew and Muri, 1998; Zhang, 1999). As we enter the 21st century, quality and quality assurance of the natural

environment have been perceived as an urgent management issue. It is clear that new ways of thinking are needed to tackle the environmental and societal issues that face the global community (Quazi et al., 2001). In addition to providing quality products and services, all businesses must also commit themselves to be environmental friendly (Karapetrovic and Willborn, 1998; Stapleton, 1997). The ISO 14000 standards for environmental management systems (EMSs) emerged as a result of the negotiations at the Uruguay round of the General Agreement on Tariffs and Trade (GATT) and the 1992 Rio de Janeiro summit on the environment (Tan et al., 1999). Since the ISO 14000 standards were published in 1996, more and more companies have been certified to the ISO 14001 standard (Chan and Li, 2001). The ISO 9001 and ISO 14001 standards share similar management techniques and principles. Both of them require organizations to formulate policies, to define roles and responsibilities, to appoint management representatives, and to train personnel (Tan et al., 1999). Implementing both ISO 9001 and ISO 14001 demands many duplicate management tasks. For example, both ISO 9001 and ISO 14001 require all working procedures to be traceable and auditable. Therefore, two separate documentation systems are needed to meet their requirements which involve a lot of documentation, written procedure, checking, control forms, and other paper work (Tse, 2001). In practice, it has been proved difficult to deal with separate management systems covering quality and environment, and ensuring that they align with the organization’s strategy (Wilkinson and Dale, 1998). Hence, integrated management systems (IMS) have drawn the attentions of both academics and practitioners. An IMS is increasingly seen as a part of the organization’s management portfolio (Labodova, 2004; Wilkinson and Dale, 2002). The construction industry has the third highest number of ISO 9000-certificates among all industrial sectors at a worldwide level, behind only electrical and optical equipment and basic/fabricated metal products. Construction-related firms accounts for 7 percent of the total certified companies in all industrial sectors in 2000 (Chini and Valdez, 2003). Although the ISO 14001 certification is relatively low comparing to the ISO 9001 certification in the construction industry (Zeng et al., 2002), more and more contractors are planning to implement the environmental management standards. The environmental impact of buildings over their entire life cycle has been recognized as a serious problem (Ofori et al., 2000). There is paucity of studies on integrated management systems based ISO 9001 and ISO 14001 standards in the construction industry. The aim of this study is to evaluate implementation of IMS based ISO 9001 and ISO 14001 standards for construction firms. The ISO 9001 and ISO 14001 standards The ISO 9000 series standards have their origins in the military procurement standards developed during the Second World War. They ultimately led to the publication of the first commercial quality management standards BS 5750 by the British Standards Institute in 1979. In 1987, the British Standards BS 5750 were adopted with a few changes as the international standards: ISO 9000 (Boulter and Bendell, 2002). The standards were updated in 1994 with some minor changes. The ISO 9000:1994 standards contain three auditable certification standards, i.e. ISO 9001/2/3. They provide corresponding clauses for different type of business including companies that design their own products and services (20 clauses), companies that do everything

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except design (19 clauses), and companies where products and services can be verified only by inspection and test (16 clauses). Major changes were incorporated in the ISO 9000:2000 version. The latest ISO 9001:2000 revision is based on the following eight quality management principles: (1) customer-focused organizations; (2) leadership; (3) involvement of people; (4) process approach; (5) system approach to management; (6) continual improvement; (7) factual approach to decision making; and (8) mutually beneficial supplier relationships. Based on these eight guiding principles, the 20 clauses of the ISO 9001:1994 were revised into the following five main management requirements: (1) quality management system (QMS); (2) management responsibility; (3) resources management; (4) product realization, and (5) measurement, analysis, and improvement (Low and Chin, 2003). The ISO 9001:2000 standard integrated the three standards into ISO 9001, which places emphasis on process management and resource management and has commonality of architecture with ISO 9004, so that quality assurance requirements and quality management can be aligned holistically (Tsim et al., 2002). The ISO 14000 series comprise five aspects: EMS, environmental auditing (EA), environmental labeling (EL), environmental performance evaluation (EPE), and life cycle assessment (ECA). The standards can be classified into two types: guidance notes and specifications. All standards except ISO 14001 belong to the former. They are descriptive documents and not prescriptive requirements. Only ISO 14001-based EMS is a standard. Its adoption is voluntary (Ofori et al., 2002). After adoption, an organization is to be audited. As a subset of ISO 14000, the EMS takes a systematic approach and provides a tool to enable organizations to control the impact of their activities, products, or services on the natural environment (Zeng et al., 2003). Integrated management systems Integration is defined differently by researchers. Garvin (1991) refers integration to the degree of alignment or harmony in an organization. MacGregor Associates (1996) see integration as a single top level management “core” standard with optional modular supporting standards coving specific requirements. A study on the integration of QMS and the EMS and occupational health and safety management system by Wilkinson and Dale (1998) argue that integration can be carried out in a number of different ways and may have resulted in differences in understanding of meaning of the term and in applying it. Karapetrovic and Willborn (1998) call the integrated system “a system of systems”. They argue that the

integration of two systems means to link them in a way that results in a loss of independence of one or both. An integration normally leads to a stronger and more comprehensive management system. Beechner and Koch (1997) feel that ISO 9001 and ISO 14001 are so similar that they should be integrated in order to improve performance. Organizations should start writing the ISO 14001 elements into the ISO 9001 clauses based on linkages given in Annex B of ISO 14001:1996. Puri (1996) has developed a set of guideline for an integrated EMS/TQM system with three broad components and a framework based on ISO 9001. The three components are: management responsibility, process management, and support systems. The sub-clause links between ISO 9001 and ISO 14001 are identified and the framework of ISO 9001 is used as the basis for EMS certification (Culley, 1996). The EMS elements are then incorporated as a set of documentation and procedures for meeting the certification requirements of both standards. Tranmer (1996) recommends a multilevel integration. Improved understanding and the common use of the systems are the main reasons for integration, which is thought as level one. Aligning of the two systems with the business objectives and overall strategy of an organization is clearly related to other levels. Some researchers suggested several possible strategies for integrating 9001 and ISO 14001 standards. Karapetrovic and Willborn (1998) propose three different approaches as follows: (1) establish a QMS first and subsequently an EMS; (2) establish EMS first and subsequently QMS; and (3) establish EMS and QMS simultaneously. Wilkinson and Dale (2002) suggest two approaches to achieve integration which takes place in two ways and at different levels. The two approaches are: to merge the documentation through the aligned approach through the similarities in the standards, and to implement the integrated system through a total quality management approach. For certification purposes, merging of documentation through the aligned approach is adopted, but the scope and the level of integration have to consider the needs and the culture of the organization. Although it is theoretically feasible to integrate ISO 9001 and ISO 14001 in the sense of documentation, it is unclear what is the attitude of the construction industry toward such integration. The remaining of the paper intends to present relevant information and conclusions obtained from a structured questionnaire survey. The survey In order to properly design the questionnaire, the researchers interviewed the auditors of ISO 9001 and ISO 14001 standards and senior managers of ten construction firms. The structured questionnaires were sent to 300 construction firms in China. Among them, 68 completed questionnaires were received – a response rate of 23 percent. The questionnaire consisted of six sections: (1) firm profile; (2) compulsory or voluntary implementation for ISO 9001 and ISO 14001; (3) relationship between ISO 9001 and ISO 14001 standards;

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(4) reasons for an integration of the two standards; (5) benefits of integration; and (6) organizational needs for achieving an integration. Profile of firms in the survey All of the 68 responded firms are ISO 9000-certified. They fall into two categories of ownership: 56 state-owned (82 percent), and 12 private-owned (18 percent). In China, large construction firms are normally state-owned establishments under the traditional planned economy system. The 68 respondents include 28 firms working in the building sector (41 percent), 22 firms involving in the civil sector (32 percent) and 18 firms engaging in the installation sector (27 percent). Among the 68 contractors, 54 of them are general contractors (79 percent), and 14 are subcontractors (21 percent). Table I summarizes the ISO 9000-certification information of the responded firms. Table I shows that 88 percent of the responded construction firms have implemented ISO 9000 standards for over three years. It reveals that most of the respondents have rich experience in the implementation of the standards. Overall, 79 percent of the responded firms have finished the transfer from ISO 9000:1994 to the 2000 version standard or have directly implemented the latter; and 21 percent are implementing the transfer to the new standard. This indicates that the firms have had detailed knowledge of the new standards. Of the 68 respondents, 24 (35 percent) were also ISO 14001-certified. Thirty-seven (55 percent) were going to implement the ISO 14001 standard in the near future. The other seven (10 percent) are not planning to seek ISO 14001 certification if clients have no such requirements. All the respondents indicated that they have the knowledge on the ISO 14001 standard. Analysis of the results Compulsory or voluntary implementation for ISO 9001 and ISO 14001 The respondents were asked to indicate whether ISO 9001 and ISO 14001 standards should be implemented compulsorily or voluntarily. Figure 1 shows the results. Numbers Percentage of of firms total firms

Item Period of getting certification of ISO 9000 standards

Table I. Status of the responded firms in implementing ISO 9000 standards

,3 years 3-5 years .5 years

Total Having finished transfer from ISO 9000:1994 to ISO 9001:2000 ,1 year standard or directly implementing the new standard 1-2 years .2 years Being implementing transfer from ISO 9000:1994 to – ISO 9001:2000 standard Not implementing ISO 9001:2000 standard – Total

8 32 28 68 38

12 47 41 100 55

14 2 14

21 3 21

0 68

0 100

Figure 1 shows that 41 percent of the respondents considered ISO 9001 and ISO 14001 standards should be implemented voluntarily. Only 20 percent supports a compulsory implementation of the two standards. Of all the respondents, 65 percent chose a voluntary implementation of ISO 9001, and 56 percent volunteered for an implementation of ISO 14001. In general, a voluntary implementation for environmental management could create a more cooperative relationship between enterprises and the government (Poksinska et al., 2003). A compulsory implementation might create an adversarial atmosphere. Although many respondents (44 percent) support compulsory implementations for ISO 14001, it is difficult to achieve expected benefits. Lessons have learned in ISO 9000 implementations in some regions (Tam et al., 2000). In the USA, environmental protection has been incorporated as the government policy, which is characterized a compulsive implementation. Since the early 1980s, voluntary initiatives have started and have become more prevalent in the USA (Labatt and Maclaren, 1998).

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The relationship between ISO 9001 and ISO 14001 The respondents were required to evaluate the relationship between the ISO 9001 and ISO 14001 standards. The results are shown in Figure 2. Of the respondents, 59 percent considered an integration of ISO 9001 and ISO 14001. This shows that a majority of the respondents support an integration of the ISO 9001 and ISO 14001 standards. The current ISO 14001 standard states: “This standard share common management principles with the ISO 9000 series of quality system standards.

Figure 1. Attitudes towards the implementation of ISO 9001 and ISO 14001

Figure 2. Relationship between ISO 9001 and ISO 14001

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Organizations may elect to use an existing management system consistent with the ISO 9000 series as a basis for its ” (ISO, 1996). Moreover, 21 percent of the respondents support a merge of the ISO 9001 and ISO 14001. This view is shared by some writers. Beechner and Koch (1997) believe that ISO 9001 and ISO 14001 are so intertwined that they should be merged into a single standard. However, the ISO technical advisory group, ISO/TAG 12, recommended recently that ISO 9000 and ISO 14000 series should remain separate, but be made more compatible. Twelve percent chose a separate implementation of ISO 9001 and ISO 14001. This may attribute to the differences between the two standards including: (1) different perceived customers and stakeholders, the customers for QMS are individuals who purchase a product or service, but the customers for EMS are the general public, local communities, and the government; (2) interests concerning the environment are more homogeneous internally and externally than interests concerning product quality improvement. ISO 9001 provides a way of ensuring that products conform to specific requirements, but the ISO 14001 standard is concerned with the outcome of an organization’s activities and ensuring that it conforms to the environmental policy and objective. MacGregor Associates (1996) recognize the difference but consider it possible for alignment. Reasons for integration The respondents were required to examine the reasons for integrating the ISO 9000 and ISO 14000 standards. The results are shown in Figure 3. Figure 3 shows that 53 percent believe that similarity is the main reason for integration. ISO 9001 and ISO 14001 are so similar that they require an integration in order that an organization can improve management performance and remain focused on business objectives. Some insights as follows may also explain the opinion. (1) Both ISO 9001 and ISO 14001 are management systems which require organizations to formulate policies, to define roles and responsibilities, to appoint management representatives, and to train personnel. With similar management principles, both ISO 9001 and ISO 14001 are helpful for organizations to establish an effective documentation system by implementing a complete series of standards. The role of documentation is for communication, operations, traceability, and evaluation. With a combining process, an organization can better plan and execute it based on its practical needs.

Figure 3. The reasons for integrating ISO 9001 and ISO 14001

(2) On the basis of similar operations in implementing ISO 9001 and ISO 14001, organizations can optimize and control the activities and processes affecting quality and the environment in order to achieve their policies and promises (Oldfield, 1997). (3) The models for continual improvement are similar for both the QMS and the EMS. A continual improvement is achieved by the cycle of P-D-C-A (planning-do-check-action) in quality improvement (Low and Jasmine, 2004). Organizations should adopt the same cycle of “P-D-C-A” (planning-implementation and operation-checking-management review for action) for their continual improvements when implementing EMS (Figure 4).

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In addition, 41 percent of the respondents chose compatibility as the second major reason for integration. As the ISO/TAG 12 suggests, compatibility means that common elements of the standards can be implemented in a shared manner, in whole or in part, by organizations without unnecessary duplication or the imposition of conflicting requirements. Compatibility does not mean identical text for the common elements of the standards although they should be if possible. In ISO 9001 and ISO 14001 standards, some requirements are identical including management responsibility, documentation control, records management, training, awareness and competence, and communication. Some other requirements are similar, such as control of nonconforming product and checking and corrective action. A one to one comparison of the two standards are summarized in Table II. Benefits of an IMS The respondents were asked about the benefits of an integrated ISO 9000 and ISO 14000 system. The results are shown in Figure 5. The results show that 41 percent respondents considered that IMS could avoid duplication of procedures; 25 percent believe that IMS could reduce conflict of

Figure 4. The continual improvement model in implementing EMS

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ISO 14001:1996

ISO 9001:2000

1 Scope 2 Normative reference 3 Definitions 4 EMS 4.1 General requirements 4.2 Environmental policy

1 Scope 2 Normative reference 3 Definitions 4 QMS 4.1 General requirements 5.1 Management commitment 5.3 Quality policy 8.5 Improvement 5.4 Planning 5.2 Customer focus 7.2.1 Determination of requirements related to the product 7.2.2 Review of requirements related to the product 5.2 Customer focus 7.2.1 Determination of requirements related to the product 5.4.1 Quality objectives 5.4.2 QMS planning 8.5.1 Continual improvement 7 Product realization 7.1 Planning of product realization 5 Management responsibility 5.1 Management commitment 5.5.1 Responsibility and authority 5.5.2 Management 6.2.2 Competence, awareness, and training 5.5.3 Internal communication 7.2.3 Customer communication 4.2 Documentation requirements 4.2.1 General 4.2.2 Quality manual 4.2.3 Control of documents 7 Product realization 7.1 Planning of product realization 7.2 Customer-related process 7.2.1 Determination of requirements related to the product 7.2.2 Review of requirements related to the product 7.3 Design and development 7.3.1 Design and development planning 7.3.3 Design and development outputs 7.3.4 Design and development review 7.3.5 Design and development verification 7.3.6 Design and development validation 7.3.7 Control of design and development changes

4.3 Planning 4.3.1 Environmental aspects

4.3.2 Legal and other requirements 4.3.3 Objectives and targets 4.3.4 Environmental management programs 4.4 Implementation and operation 4.4.1 Structure and responsibility

4.4.2 Training, awareness and competence 4.4.3 Communication 4.4.4 EMS documentation 4.4.5 Document control 4.4.6 Operational control

Table II. Comparison between ISO 14001 and ISO 9001 standards

(continued)

ISO 14001:1996

4.4.7 Emergency preparedness and response 4.5 Checking and corrective action 4.5.1 Monitoring and measurement

4.5.2 Nonconformance and corrective and preventive action 4.5.3 Records 4.5.4 EMS audit 4.6 Management review

ISO 9001:2000 7.4 Purchasing 7.4.1 Purchasing process 7.4.2 Purchasing information 7.4.3 Verification of purchased product 7.5 Product and service provision 7.5.1 Control of product and service provision 7.5.2 Validation of process for production and service provision 7.5.3 Identification and traceability test records 7.5.4 Customer property supplied product 7.5.5 Preservation of product 8.3 Control of non-conforming product 8 Measurement, analysis, and improvement 7.6 Control of monitoring and measuring devices 8.1 General 8.2 Monitoring and measurement 8.2.1 Customer satisfaction 8.2.3 Monitoring and measurement of process 8.2.4 Monitoring and measurement of product 8.4 Analysis of data 8.3 Control of nonconforming product

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8.5.2 Corrective action 8.5.3 Preventive action 4.2.4 Control of records 8.2.2 Internal audit 5.6 Management review 5.6.1 General 5.6.2 Review input 5.6.3 Review output

Source: Annex B of ISO 14001:1996 and Annex A, B of ISO 9001:2000

Table II.

Figure 5. Benefits of integration of ISO 9001 and ISO 14001

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procedures; and 22 percent think that an integrated system can reduce the requirements for resources. The benefits of IMS have been reported by many writers (Karapetrovic and Willborn, 1998; Wilkinson and Dale, 1999). Gilbert (1993) believes that companies should integrate BS 7750 (ISO 14001) audit procedures with those for other management systems to avoid duplication of effort in order to reduce costs. However, an integration is only feasible when the audit team has the right mix of skills and the EMS is fully integrated with the management system. Similarly, Sunderland (1997) found a reduction of effort and costs resulted from integration. Karapetrovic and Willborn (1998) believe that an integrated system in whatever form should always lead to a more effective system, such as: . improved technology development and transfer; . improved operational performance; . improved internal management and cross-functional teamwork; . higher staff motivation, lower interfunctional conflicts; . streamlined processes; . enhanced confidence of customers and positive market/community image; and . reduced costs and efficient re-engineering. Wilkinson and Dale (1999) believe that integrating quality and environment systems has simplified the management of their business. IMS is seen as a constantly evolving system that fits well with self-assessment and benchmarking. It provides direction and structure for the business as well as ensures that the individual certification standards are met in a cost-effective manner. Organizational supports needed for implementation The respondents were surveyed with their needed supports for implementing integrated ISO 9000 and ISO 14000 systems. The results are shown in Figure 6. The results show that 41 percent respondents need technical guidance. Although IMS is starting to appear in literature, there is a scarcity of actual implementation experience due to limited implementation. Among the 68 surveyed firms, only two of them had integrated the ISO 9001 and ISO 14001 standards. Unlike implementing two separate ISO 9001 and ISO 14001 standards, there is a lack of consulting organizations who can provide adequate technical guidance to contractors.

Figure 6. Supports needed for implementation

Among the surveyed firms, 32 percent expect supports from certifying bodies. Currently QMS based ISO 9001 and EMS based on ISO 14001 are two different certifying bodies. Certifying bodies have to face the demand for conducting joint certifications. Among the surveyed, 12 percent of the respondents felt important to get support from customers. This may be attributed the fact that the two standards serve different customers and stakeholders. ISO 9001 is market driven while ISO 14001 is driven by stakeholders, the community, and regulators. In the construction industry customers are the clients for QMS; customers are the general public, local communities, and the government for EMS. Clients put high priority on quality. They want their contractors to implement the ISO 9001 standard to ensure the project quality. This may be mirrored from the fact that much less contractors have the ISO 14001 certifications comparing to the ISO 9001 certifications in the construction industry (Zeng et al., 2002). Moreover, 9 percent of the respondents expect supports from their employees. Both ISO 9001 and ISO 14001 standards require all working procedures to be traceable and auditable. If a firm plans to implement IMS, it is indispensable for the employees to be trained with a good understanding of the new system. Conclusions As more and more companies are implementing the ISO 9001 and ISO 14001 standards, they have been experienced the extra work and new challenge for implementing and running two separate systems. IMSs by combining the ISO 9001 and ISO 14001 standards provide an effective way to face the challenge. Based on the results from a structured questionnaire survey administrated in this research, it is concluded that the construction industry welcome the idea of implementing integrated ISO 9001 and ISO 14001 systems. Among the reasons for demanding such integration, similarity and compatibility between the two standards are the two major ones. The benefits from integrated systems mainly include: avoidance of duplication of procedures, reduced conflict between procedures, and reduced requirements for resources. The surveyed contractors also viewed their needs for technical guidance and appropriate support from certifying bodies in order to help them implement such integrated systems. References Beechner, A.B. and Koch, J.E. (1997), “Integrating ISO 9001 and ISO 14001”, Quality Progress, Vol. 30 No. 2, pp. 33-6. Boulter, L. and Bendell, T. (2002), “How can ISO 9000:2000 help companies achieve excellence? What the company think”, Measuring Business Excellence, Vol. 6 No. 2, pp. 37-41. Chan, K.Y. and Li, X.D. (2001), “A study of the implementation of ISO 14001 environmental management system in Hong Kong”, Journal of Environmental Planning and Management, Vol. 44 No. 5, pp. 589-601. Chin, K.S. and Choi, T.W. (2003), “Construction in Hong Kong: success factors for ISO 9000 implementation”, Journal of Construction Engineering and Management, Vol. 129 No. 6, pp. 599-609, ASCE. Chini, A.R. and Valdez, H.E. (2003), “ISO 9000 and the U.S. construction industry”, Journal of Management in Engineering, Vol. 19 No. 2, pp. 78-82, ASCE. Culley, W.C. (1996), “Integrating ISO 14000 into your quality system”, Professional Safety, Vol. 41 No. 8, pp. 20-4.

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Garvin, D. (1991), “How the Baldrige Award really works”, Harvard Business Review, pp. 80-93, November/December. Gilbert, M.J. (1993), Achieving Environmental Management Standards: A Step-by-step Guide to Meeting BS7750, Pitman, London. Hoyle, D. (1996), “Quality systems – a new perspective”, Quality World, Vol. 22 No. 10, pp. 710-3.

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ISO (1996), ISO 14001 – Environmental Management Systems-Specification with Guidance for Use, DIS, International Organization for Standardization, Geneva. Karapetrovic, S. and Willborn, W. (1998), “Integration of quality and environmental management systems”, The TQM Magazine, Vol. 10 No. 3, pp. 204-13. Labatt, S. and Maclaren, V.W. (1998), “Voluntary corporate environmental initiatives: a typology and preliminary investigation”, Environment and Planning C: Government and Policy, Vol. 16, pp. 191-209. Labodova, A. (2004), “Implementing integrated management systems using a risk analysis based approach”, Journal of Cleaner Production, Vol. 12, pp. 571-80. Low, S.P. and Chin, Y.P. (2003), “Integrating ISO 9001 and OHSAS 18001 for construction”, Journal of Construction Engineering and Management, Vol. 129 No. 3, pp. 338-47. Low, S.P. and Jasmine, A.T. (2004), “Implementing total quality management in construction firms”, Journal of Management in Engineering, Vol. 20 No. 1, pp. 8-15. MacGregor Associates (1996), Study on Management System Standards, British Institute, London. Ofori, G., Briffett, C., Gang, G. and Ranasinghe, M. (2000), “Impact of ISO 14000 on construction enterprises in Singapore”, Construction Management and Economics, Vol. 18 No. 8, pp. 935-47. Ofori, G., Gu, G. and Briffett, C. (2002), “Implementing environmental management systems in construction: lessons from quality systems”, Building and Environment, Vol. 37 No. 12, pp. 1397-407. Oldfield, H. (1997), “Integrating quality into the management mosaic”, Quality World, Vol. 23 No. 5, pp. 404-7. Poksinska, B., Dahlgaard, J.J. and Eklund, J.A. (2003), “Implementing ISO 14000 in Sweden: motives, benefits and comparisons with ISO 9000”, International Journal of Quality & Reliability Management, Vol. 20 No. 5, pp. 585-606. Puri, S.C. (1996), Integrating Environmental Quality with ISO 9000 and TQM, Productivity Press, Portland, OR. Quazi, H.A., Khoo, Y.K., Tan, C.M. and Wong, P.S. (2001), “Motivation for ISO 14000 certification: development of a predictive model”, Omega, Vol. 29, pp. 525-42. Renfrew, D. and Muri, G. (1998), “QUENSHing the thirst for integration”, Quality World, Vol. 24 No. 8, pp. 10-13. Stapleton, P. (1997), “Many possibility exist for ISO 9001 and ISO 14001 integration”, Quality Progress, Vol. 30 No. 7, pp. 8-10. Sunderland, T.J. (1997), “Environmental management standards and certification: do they add value?”, in Sheldon, C. (Ed.), ISO 14000 and Beyond, Greenleaf Publishing, Sheffield. Tam, C.M., Deng, Z.M., Zeng, S.X. and Ho, C.S. (2000), “Quest for continuous quality improvement for public housing construction in Hong Kong”, Construction Management and Economics, Vol. 18 No. 4, pp. 437-46.

Tan, T.K., Ofori, G. and Briffett, C. (1999), “ISO 14000: Its relevance to the construction industry of Singapore and its potential as the next industry milestone”, Construction Management and Economics, Vol. 17, pp. 449-61. Tranmer, J. (1996), “Overcoming the problems of integrated management systems”, Quality World, Vol. 22 No. 10, pp. 714-8. Tse, R.Y.C. (2001), “The implementation of EMS in construction firms: case study in Hong Kong”, Journal of Environmental Assessment Policy and Management, Vol. 3 No. 2, pp. 177-94. Tsim, Y.C., Yeung, V.W.S. and Leung, E.T.C. (2002), “An adaptation to ISO 9001:2000 for certified organizations”, Managerial Auditing Journal, Vol. 17 No. 5, pp. 245-50. Wilkinson, G. and Dale, B.G. (1998), “System integration: the views and activities of certification bodies”, The TQM Magazine, Vol. 10 No. 4, pp. 288-92. Wilkinson, G. and Dale, B.G. (1999), “Integrated management systems: an examination of the concept and theory”, The TQM Magazine, Vol. 11 No. 2, pp. 95-104. Wilkinson, G. and Dale, B.G. (2002), “An examination of the ISO 9001:2000 standard and its influence on the integration of management systems”, Production Planning and Control, Vol. 13 No. 3, pp. 284-97. Yates, J.K. and Aniftos, S. (1997), “International standards and construction”, Journal of Construction Engineering and Management, Vol. 123 No. 2, pp. 127-37, ASCE. Zeng, S.X., Tam, C.M., Wang, H.C. and Deng, Z.M. (2002), “Quality certification scheme in the construction industry of China”, Architectural Science Review, Vol. 45 No. 2, pp. 83-9. Zeng, S.X., Tam, C.M., Deng, Z.M., Tam and Vivian, W.Y. (2003), “ISO 14000 and the construction industry: survey in China”, Journal of Management in Engineering, , ASCE, Vol. 19 No. 3, pp. 107-13. Zhang, G.X. (1999), “Beyond ISO 9000:2000 certification – a China experience”, Managerial Auditing Journal, Vol. 14 No. 1, pp. 75-8.

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Curtin University of Technology, Australian University, School of Business, Accounting Department, Sarawak Campus, Sarawak, Malaysia

Junaid M. Shaikh

Abstract Purpose – We expect an explosive application of these technologies to take place when they become mature and may further assist auditors in improving the quality of their work. How to use some of the computer-assisted auditing techniques (CAATs) more effectively with the emerging information technologies. Design/methodology/approach – Constructed an infrastructure with the support of emerging technologies. Electronic auditing (EA) framework – prepared and used with information technology, these examples are object-oriented distributed middlewares, internet security technologies, and intelligent agents. Findings – How a CPA may conveniently audit the loan account of a bank with EA framework. Demonstration/application. Research limitations/implications – Auditors will have to design one specialized audit software for each auditee’s electronic data processing (EDP) system if the EDP system uses proprietary file formats or different operating systems. The EA has some limitations. This approach depends on distributed middlewares standards, i.e. CORBA, DCOM, or Java RMI, to enable the interconnections of the auditor’s GASI, auditee’s EDP systems. Practical implications – This system emulates EDP applications in the banking industry and is based on the Common Object Request Broker Architecture (CORBA) architecture industrial standard. Originality/value – How auditor could effectively apply existing CAATs with the support of the modern information technologies such as object-oriented distributed middleware, internet security technologies, and intelligent agents. Furthermore, this article proposes a new auditing approach that we call EA. Application in banking and financial institution for auditing banks loan account. Keywords Auditing, Electronic commerce Paper type Research paper

1. Introduction Today’s organizations rely heavily on sophisticated electronic data processing (EDP) systems to manage their daily business transactions and strategic accounting records in order to meet the challenge of fierce international competition. The increasing dependence on EDP systems has raised serious concerns from auditing practitioners and professional organizations such ASB (2002a, b; 2003a, b). For example, transaction and account information is kept in electronic form, which is readable only to computers (Foneca, 2003). Furthermore, audit trails exist only for a limited period or even do not Managerial Auditing Journal Vol. 20 No. 4, 2005 pp. 408-421 q Emerald Group Publishing Limited 0268-6902 DOI 10.1108/02686900510592089

I would like to thank my friend, Mr. Tan Ming Khuan, who deserves a special appreciation for always being so knowledgeable and helpful. Appreciation is also expressed to Mr. Varatharajah for his encouragement and advice during the project. Also, thanks are due Madam Lim Kwee Pheng for providing useful information in our research. My special, well hearted thanks to Professor Gerald Vinten for timely and valuable suggestion and editing.

exist at all since the transactions are automatically processed by EDP systems (Khemakhe, 2001). Therefore, it is difficult to uncover unauthorized transactions and/or other exceptions at later time if they are not detected on a timely basis (a detailed summary of concerns can be found in a recent “The IIA Research Foundation”). In response to these auditing concerns, many computer-assisted auditing techniques (CAATs) have been proposed (ASB and ASB). For example, generalized audit software (GAS) enables auditors to access live account data stored in various file formats that are machine-readable only (EDP and AuG-37, 2003). GAS also can disclose useful information on client master files that are not included in reports produced by the client. Integrated test facility (Helms, 2002), parallel simulation, and other ex-post CAATs can be used to validate the correctness of the EDP software module (Weber, 2004). Concurrent CAATs such as embedded audit modules and system control audit review file (SCARF) can be installed to examine transaction flows and to detect exceptions online, such as suspicious transactions (Wells, 2001). Recent surveys show, however, that CPAs do not frequently and systematically use these CAATs in practice (Kalaba, 2002). For example, GAS is not on the list of the “common software use” according to the survey series conducted (Heffley and Meunier, 2004). Other surveys (1998-2001) indicate that both ex-post and concurrent CAATs are used primarily in internal audit settings by proprietary implementation. Even the most commonly installed CAAT, ITF, is used only by 5-20 percent of organizations (IIA, 2003; Knaster, 2003; Le Grand, 2001; Mehmet, 2002; Schelluch and Gay, 2002). The failure of CAATs to meet their expectations may be due to the following reasons: first, GAS or CAATs lack a common interface with IT systems, such as file formats, operating systems, and application programs. We start with interactive data extraction and analysis (IDEA; AICPA, Chuck and Carolyn, 2004), one of the most popular GAS packages that is able to extract several file formats, such as ASCII, DBASE III, and others with a common interface. The problem is that auditors will have to design one specialized audit software for each auditee’s EDP system if the EDP system uses proprietary file formats or different operating systems. Second, for other concurrent CAATs such as ITF or SCARF, it is often required that special audit software modules be embedded at the EDP system design stage (Pathak, 2003). Therefore, the early involvement of auditors at the time when the system is under development becomes necessary (IIA, 2003; Tongren, 1999). Furthermore, an auditing policy change may require a major modification not only to individual audit software modules, but also to entire EDP systems (e.g. Wells, 2001; Geired, 2002). In summary, applying these advanced CAATs is usually very costly even if it is possible. Third, as the auditees’ EDP systems become more complex, it is essential for auditors to audit through the computers. The paper stream into and out of computers disappears and is replaced by electronic data streams, which can only be analyzed in an automated fashion (Harold, 2001). Most CAATs currently in use cannot directly access an auditee’s live data. Auditors usually gather the historical data file from the auditee’s personnel. This situation creates the possibility to be given manipulated or even fraudulent data (Carolyn, 2004). In addition, electronic data tampered by unauthorized personnel can remain undetected forever if sufficient internal controls are not in place. The AICPA issued a professional pronouncement on the implications of electronic evidence, SAS No. 80, Amendment to Statement on Auditing Standard No. 31,

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Evidential Matter (Helms and Fred, 2000). This amendment suggests, “Auditors should consider using information technology to obtain evidence supporting electronic transactions.” With the rapid advances on the internet, auditors should take advantage of new information technologies in order to gather information that is more reliable. The primary focus of this article is to discuss how auditors could effectively apply existing CAATs with the support of the modern information technologies such as object-oriented distributed middlewares (Britcher, 1995, 2003; CORBA, 2003), internet security technology (Oppliger, 2000), and intelligent agents (Petit et al., 2003). Furthermore, this article proposes a new auditing approach that we call electronic auditing (EA). The basic concept of EA is to perform audit tasks electronically and automatically over the internet where most of the auditees’ accounting systems are processed and stored electronically (Harold, 2001). We demonstrate that the emerging technologies provide sufficient support to facilitate EA. With EA, we believe: (1) It is possible to create a common interface via middlewares where heterogeneous auditee’s EDP systems can be interoperated across operating systems, application software, and multivendor hardware. (2) Flexible audit modules can be triggered by the auditor on a periodic basis and may be executed locally. Since the audit module is under the auditors’ control, auditors are not required to involve early in the auditee’s EDP system and are less dependent upon computer specialists. (3) EA enables auditors to directly access, with proper authorization of course, the auditee’s or auditee’s trading partners’ live data via standard interface anytime and anywhere. This mechanism reduces the possibility of being given manipulated data (or even fraudulent data) by the auditee. The structure of this article is as follows. The first part of this article introduces a number of state-of-the-art information technologies that could facilitate EA. Most of these technologies are still under development. These technologies may have a profound impact on how future business is conducted. The second part of this article discusses what audit works can be done electronically and how they can be done. A field study with three actual designs and implementation examples are presented to demonstrate the feasibility of the EA concept. 2. Methodology adopted and literature review 2.1 The emerging information technologies Figure 1 depicts the EA framework that is constituted of three major advanced technologies: object-oriented distributed middlewares, intelligent agents, and internet security technologies. This section lays out the technical background of these technologies to facilitate further EA discussions. 2.2 Distributed middlewares The explosive growth of the world wide web (www) (EDP, 2003; Emmerich), the increasing popularity of PCs, and the advances in high-speed networks have brought internet-computing into the mainstream. To simplify information access from the ever-growing www, several object-based distributed middlewares have emerged. Microsoft’s DCM (COMS, 2003), object management group’s (OMG) CORBA (CORBA,

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Figure 1. The EA framework

2003), and Javasoft’s RMI (JAVA, 2003) are three of the most important industrial standards. A distributed object is essentially a component. This means that a distributed object is a self-contained intelligence that is capable of interoperating across operating systems, networks, languages, applications, tools, and multivendor hardware. This component is a unit of packaging, distribution, and maintenance. It is also a unit of deployment on a distributed object bus such as CORBA ORB or DCOM. The object bus provides a unified system architecture that can be of tremendous help to the system integrators of organization EDP systems. The information or service provided by a distributed object is usually encapsulated into that object, and the interface for this object is described in a standard interface definition language (IDL) (CORBA, 2003). The interface defined by IDL serves as a contract between a server and its clients. Clients interact with a server by invoking methods (or object operators) described in the IDL. The actual object implementation is hidden from the client. Many object-oriented features are represented at the IDL level, such as data encapsulation, polymorphism, and interface inheritance (Lhotka et al., 2003). Encapsulation is information hiding. The interface to a program is defined in such a way as to hide as much as possible information about its inner workings. Encapsulation also separates the user of an object from the author of the object (Lhotka et al., 2003). Polymorphism is the ability of objects from different classes to respond in their own appropriate manner to common messages. The characteristic of a method that is applied across classes, changing its implementation to match the class, is called polymorphism. Inheritance is the automatic passing of properties for characteristics from a parent or ancestor to a child. The goal of object-orientation is to make software easier to create, simpler to use, and more reliable through reusability. The distributed object infrastructure provides a base where EA can be facilitated. Communication between interfaces under our implementation is supported by CORBA, and all of these interfaces are specified using OMG IDL.

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With data encapsulation, it is possible to “encapsulate” the legacy EDP systems with standard interfaces. One of the examples is OMG’s latest attempt to “hook” organization EDP systems to a distributed object bus with a series of standard interfaces such as the General Ledger Facility (GLF) (OASIS, 2002). Excerpts of the GLF standard interface are shown here. Interface GLRetrieval { ... Account get_account (in wstring GLAcc_ref) Raises (BadAccountType): ... }:

This interface indicates that an auditor may use the standard function call get_account to retrieve a particular account from a general ledger in an auditee’s EDP system as long as this system supports the OMG’s GLF. Furthermore, the information retrieved via this interface returns account information in a standard format. The advantages of this approach are numerous. Auditors now only have to develop one generalized audit software over the internet (GASI) for all of their clients, since they are able to freely access auditees’ EDP systems through one standard interface via a homogeneous object bus over the internet. With a standard interface such as GLF and PnP function, it is possible for an auditor to design an audit module independent of the auditee’s EDP system as required in some of the traditional CAATs such as SCARF. Furthermore, auditors can decide when to start the audit module in order to disclose exceptions and potential fraud with a distributed object infrastructure and high-speed networks. 2.3 Internet security technologies The standard interface defined by distributed middlewares makes it easier for auditors to access EDP systems However, security over EDP systems has become a major concern between the auditors and auditee. The security risks are changing dramatically as the technology moves rapidly. We, therefore, propose to include a robust security layer in the EA framework as shown in Figure 1. This security layer provides a variety of functions to guard not only the safety of the data stored in the EDP systems but also the messages exchanged between two parties over the internet against malicious third parties (Neumann, 2002). These functions include authentication, encryption, and nonrepudiation. Authentication is a process in which both the client and the server must prove their identity to a trusted third party before they can begin a secure session. The authentication process can be achieved using security technologies such as digital certificate (Feghhi et al., 2004). Encryption allows two principals to hold a secure communication. Each principal must obtain a copy of a session key from a trusted third party. For example, logging on to an EDP system is granted only through legal passwords. Retrieving sensitive information is subject to proper access control. Various encryption algorithms such as public/private key (Feghhi et al., 2004) protect information transmitted over the internet/intranet. Nonrepudiation means uncontestable proof that a document (or message) was really originated by specific party. In the context of our framework, nonrepudiation implies

that a document, such as a financial statement, (auditor) retrieved from an EDP system via an authorized interface over the internet will be considered a legal document. This document can be seen as a “send” out by an organization’s EDP system. This security technology requires a form of electronic signature (Feghhi et al., 2004). 2.4 Intelligent agents With the explosive growth of the www, people often feel overwhelmed or even frustrated with this “unorganized” gigantic cyberspace Recent researches in areas such as artificial intelligence and knowledge engineering have provided some hope for the future. A new concept called an intelligent agent has just emerged (Geired, 2002).

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“An autonomous agent (intelligent agent) is a system situated within and as a part of an environment that senses that environment and acts on it, over time, in pursuit of its own agenda and so as to effect what it senses in the future.” (Stone and Littman, 2001)

The most primitive intelligent agents are used in various types of search engines. Figure 2 illustrates a shopping agent that can assist someone with no knowledge of notebook computers to find the best bargains from thousands of notebook vendors on the internet. A thorough market analysis with easy-to-follow shopping recommendations will be presented within a few seconds, as depicted in Figure 3. These intelligent agents are capable of interacting with humans using natural language, analyzing semantics, and cooperating with other agents on the internet.

Figure 2. An example of existing intelligent agents on the internet

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Figure 3. The research results from an intelligent agent

Since intelligent agents are powerful in gathering professional information from this cyberspace for people without professional knowledge, auditors can acquire industry-specific knowledge (or domain knowledge) easily without the need for specialists such as appraisers and industry specialists. All acquired information could be restricted as much as possible. Intelligent agents will greatly enhance all aspects of audit work including gathering industry information, collecting, and evaluating the value of evidence, assessing the auditee’s industry risk, and performing analytical reviews. For example, FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” provides guidance on the valuation and presentation of investments in securities. Whether investments in securities are carried at cost or at market depends on the nature and classification of the securities. Auditors can achieve the specific audit objectives related to the valuation of an investment account using intelligent agent techniques. The first step in intelligent agent techniques is to find the specific domain of these securities by keying in important key words. Next, auditors could take advantage of an intelligent engine to search the fair market value of these securities and the risk level of special type securities in order to achieve the audit objective. As one can search, filter, analyze, and ultimately make decisions using the information gathered by intelligent agents from the www, auditors can benefit from intelligent agents to improve the quality of their work.

3. Analysis 3.1 EA and commonwealth national bank A field study to demonstrate the feasibility of the EA framework has been conducted This study involves the Cooperation Account Department (CAD) at a commercial bank (Commonwealth National Bank), as depicted in Figure 4. This study consists of three major phases. In the first phase, intensive interviews are conducted with the staff of the MIS department and CAD of Commonwealth National Bank and the auditors from CPA K. The standard operation procedure for account loans at Commonwealth National Bank was thus constructed. Similarly, the auditing procedures at KPMG were derived. In the second phase, the EA software was designed and deployed to the IT systems at both Commonwealth National Bank and CPA K. The CAD was audited electronically via the internet over a period of 2 months. In this section, the EA system architecture design was presented and the results of this study were discussed via three case studies. Finally, the benefits of EA method were illustrated in the KPMG and Commonwealth National Bank perspectives.

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3.2 Three scenarios 3.2.1 Scenario 1: On-line access to auditee’s live data. Scenario 1 illustrates how a CPA may conveniently audit the loan account of a bank via GLF (CORBA based) over a secured internet channel. GLF (CORBA based) can provide an opportunity to “glue” many heterogeneous systems using one common layer. This common layer defines the standard application interfaces as well as the standard data structures. Therefore, it becomes possible for auditors to download from the client’s side live information such

Figure 4. CAD at a commercial bank

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Table I. Online access to auditee’s live data

as transaction records, accounts in-general ledger through standard interfaces and to design one GASI for all of auditees. Since GASI can be designed, implemented, and tested on the CPA’s platform, it imposes no inference to the auditees’ operational EDP systems. This example also illustrates that proper access and authorization controls must be installed (using internet security technologies) at both sides, the auditor (the CPA) and auditee (the Commonwealth National Bank). Only authorized parties are allowed to access the live data. Furthermore, information transmitted over the secured channel will prevent tampering by network “sniffers.” The scenario is that KPMG audits Commonwealth National Bank’s Loan (individual or collateral) accounts. Other related accounts involved in this audit are accounts such as interest receivable and interest income. Under the proposed EA framework, KPMG can assess Commonwealth National Bank’s general ledger online via its CORBA GLF interface in order to get mortgage balance and interest information from the loan account for each loan borrower. KPMG uses GASI to recalculate all of the loan balances, interest receivable, and interest income. KPMG can then generate loan-aging statements to illustrate the past due interest receivable balance. Exceptions will be raised in the exception reports as well. This example shows how KPMG can take the advantage of the fast GASI process to perform a complete substantive test for all of the accounts. The CORBA BankGLRetrieval and object interfaces such as loan, interest receivable, and interest income are required for this example (Table I). 3.2.2 Scenario 2: Online detection of exceptions. Scenario 2 demonstrates the use of GASI over the EA framework to achieve an audit function: early detection of potential frauds. Auditors can plug an audit module flexibly in order to monitor targeted types of transactions on a periodic basis with GASI. This enables real-time generation of exception reports while audit trails still exist. An active notification that brings exceptions to the auditors’ attention can also be easily implemented. This approach accomplishes the same goals as other concurrent CAATs such as embedded module and SCARF but without embedding any audit modules into the auditee’s EDP system at the design stage. This can eliminate the auditors’ need to be involved in the auditee’s EDP system and increase audit flexibility. The scenario is that KPMG can actively monitor targeted information (for example, past due loans) locally through a plug-in audit module at the auditor’s side without Business logic

Supporting information technology

1. Connect to the EDP system of bank B via CORBA interface BankGLRetrieval Open Loan, cash, Interest receivable, and Interest income from bank B’s general ledger via CORBA invocation BankGLRetrieval:get_accounts_by_type. For each borrower in Loan account, perform Steps 3-5 Get mortgage balance. Interest rate, and beginning day from bank B’s loan account Retrieve year to date balance from cash per borrower account Recalculate the interest income and reconcile the balance with loan, interest receivable and interest income accounts using GASI implemented by CPA K Prepare loan aging statements and exception reports

Authentication, CORBA Encryption, intelligent agent, nonrepudiation, and CORBA Encryption, nonrepudiation, and CORBA Encryption, nonrepudiation, and CORBA GAS1 GAS1

interfering with Commonwealth National Bank’s EDP system. The audit strategy used in this example is that an exception will be raised either when a loan borrower fails to pay the interest payments for more than M months or when the past due balances are over $100,000. In this example, GASI is used to raise a flag and to pass a warning message to KPMG through CORBA middlewares automatically. Therefore, KPMG can on-line monitor suspicious transaction sets or actively detect potential risks in advance in order to prevent potential misconduct or fraud. The CORBA interfaces required for this example are cash, interest Receivable, and loan (Table II). 3.2.3 Scenario 3: Electronic confirmation. Scenario 3 illustrates how the auditor’s proprietary audit objects, such as a confirmation process can be automated using new interfaces that depend on distributed middleware’s CORBA under the EA framework. A confirmation letter can be prepared using GASI based on the live data retrieved from the auditee’s EDP system. This confirmation request could be sent by the auditor’s software to the trading partners directly via a prearranged secure channel. Operationally, the confirmation response would function like an application acknowledgment, except that the acknowledgment is sent to the auditors rather than to the trading partners. If no exceptions are noted, the confirmation process could be automated. If there were exceptions, however, manual follow-up would likely be necessary. The scenario shows the basic steps in this automated process. First, KPMG manages to retrieve loan (assets) related account information from Commonwealth National Bank via auditee’s GLF interfaces over a secured internet channel. Next, the CPA’s GASI examines the accounts and prepares confirmation letters automatically. It then sends out the confirmation letter to all loan borrowers through e-mail, EDI, or some other communication means. Once the responses are returned, GASI and an intelligent agent technique automatically evaluates the confirmed information against the auditee’s account data. An exception report is then prepared for the auditor’s review to complete the process. This electronic confirmation process can reduce the manually intensive process and electronically confirm activity with other financial institutes, loan borrowers, or customers. The CORBA interfaces needed for this example are cash and loan (Table III).

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4. Conclusion This article introduced a new concept called EA where some of the audit tasks can be conducted electronically over the internet with the support of information technologies. Business logic

Supporting information technology

1. CPA K loads the self-designed GAS1 to actively monitor loan account of bank B via CORBA interface 2. The GAS1 program retrieves interest receivable and cash accounts from bank B via CORBA interface 3. GAS1 compares each borrower’s last payment due date in cash with interest receivable balance in interest receivable account 4. The GAS1 prints an exception report and informs CPA K immediately if there exists a payment that is overdue more than M days or if the overdue payment exceeds $100,000.

1. GAS1 intelligent agent 2. Encryption, nonrepudiation, and CORBA 3. GAS1 4. GAS1 Table II. Online detection of exceptions KPMG

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Table III. Electronic confirmation

Business logic

Supporting information technology

Get all loan information from bank B via its CORBA interface (BankGLRetrieval). For each loan borrower in the account loan, perform step 2-8 Retrieve from loan account the necessary information for a typical confirmation letter, which includes borrower’s name, address, account number(s), mortgage balance, due date, interest rate and collateral description. etc. Get year-to-date balance of each borrower from cash account via CORBA interface Prepare the confirmation letter and get digital signature of CPA K Send the confirmation letter to the borrowers through e-mail or other online means Repeat until all confirmation letters are sent out Wait for replies from borrowers Examine the replied letters from bank B’s (loan) borrowers Prepare exception report if needed

Authentication, encryption, intelligent agent, and CORBA Encryption, nonrepudiation, and CORBA

Encryption, nonrepudiation, and CORBA Nonrepudiation E-mail. EDI. Or other internet technology Intelligent agent Intelligent agent

We identified three emerging information technologies to constitute a software framework to facilitate EA. These technologies include object-oriented distributed middlewares, internet security technologies, and intelligent agents. We proposed a new CAAT called GASI based on the EA framework. GASI inherits most of the existing GAS features and is able to achieve the same objectives as other concurrent CAATs. Moreover, GASI can be designed and deployed independently from the auditee’s EDP systems, therefore, it does not suffer the same drawbacks as concurrent CAATs. For the purpose of concept verification, we presented a prototype EDP system based on CORBA standards, a well-known object-oriented distributed middlewares from OMG. This system emulates a banking system (EDP) where it supports OMG’s GLF. The technical details presented in the examples demonstrate how auditors may develop, deploy, and maintain GASI to detect exceptional transactions process in auditee’s EDP systems earlier and how the confirmation process in the audit procedure can be automated. The EA has some limitations. This approach depends on distributed middlewares standards, i.e. CORBA, DCOM, or Java RMI, to enable the interconnections of the auditor’s GASI, auditee’s EDP systems, and the www. All of these middlewares technologies are in their infantry stage. This implies that they are evolving standards. We expect an explosive application of these technologies to take place when they become mature and may further assist auditors in improving the quality of their work.

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Oppliger, R. (2000), Security Technologies for the World Wide Web, Artech House, Inc., Norwood, MA. Pathak, J. (2003), “A model for audit engagement planning of e-commerce”, International Journal of Auditing, Vol. 7 No. 2, p. 121. Petitm, C., Roze, Grislin, E. and Strugeon, L. (2003), “Intelligent agents to structure and to process personalized information system”, paper presented at International Conference on Intelligent Agents, Web Technologies and Internet Commerce-IAWTIC, Vienna, 12-13 February. Schelluch, P. and Gay, G.E. (2002), “The audit evidence gathering an computer audit techniques”, Workshop notes, Presenters notes and Participants notes, July, CPA Australia. Stone, P. and Littman (2001), “An adaptable autonomus bidding agent”, Proceeding of the 5th International Conference on Autonomous Agent, Montreal, 28 May-1 June, available at: www.csc.liv.ac.uk/ , agents2001 Tongren, J. (1999), Integrated IT Audit–Part-1, Institute of Internal Auditors, Vol. 2, March. Weber, R. (2004), Information Systems Control and Audit, Prentice-Hall, Englewood Cliffs, NJ. Wells, J.T. (2001), “. . .And nothing but the truth, uncovering fraudulent disclosures”, Journal of Accountancy, p. 47. Further reading AICPA (n.d.), “The Effect of Information Technology, on the Auditor’s Consideration of Internal Control in a Financial Statement Audit”, Statement on Auditing Standards No. 94, AICPA, New York, NY. Arens, A.A. and Loebbecke, J.K. (2000), Auditing: An Integrated Approach, Prentice-Hall, Englewood Cliffs, NJ. Bagranoff, N.A. and Vendrzyk, V.P. (2000), “The changing role of IS audit among the big five US-based accounting firms”, Information Systems Control Journal, Vol. 5, pp. 33-7. Barry, D.K. (2003), Web Services and Service-Oriented Architectures: The Savvy Manager’s Guide, Morgan Kaufmann Publishers, San Francisco, CA. Berry, M.J.A. and Linoff, G.S. (2000), Mastering Data Mining, Wiley, New York, NY. Berson, A., Smith, S. and Kurt, T. (2000), Building Data Mining Applications for CRM, McGraw-Hill, New York, NY. Bierstaker, J.L., Burnaby, P. and Thibodeau, J. (2001), “The impact of information technology on the audit process: an assessment of the state of the art and implications for the future”, Managerial Auditing Journal, Vol. 63 No. 3, pp. 159-64. Bodnar, G.H. and Hopwood, W.S. (2001), Accounting Information Systems, Prentice-Hall, Englewood Cliffs, NJ. Component Object Model Specification (COMS) (1999), available at: www.microsoft.com/oledey/ olecom/title/htm Connolly, T.M., Begg, C.E. and Strachan, A.D. (1999), Database Systems – A Practical Approach to Design, Implementation, and Management, Addison-Wesley Longman, Glen View, IL. Cross Industry Standard Process for Data Mining (CRISP-DM) (2000), CRISP-DM 1.0 Step-by-Step Data Mining Guide, available at: www.crisp-dm.org/ David, J.S. and Steinbart, P.J. (1999), “Drawing in data”, Strategic Finance, December, pp. 30-6. David, J.S. and Steinbart, P.J. (2000), Data Warehousing and Data Mining: Opportunities for Internal Auditors, The Institute of Internal Auditors Research Foundation, Altamonte Springs, FL.

Goderre, D.G. (2001), Fraud Toolkit for ACL, Global Audit Publications, A Division of ACL Services Ltd., Vancouver. Hall, J.A. (2000), Information Systems Auditing and Assurance, South-Western College Publishing, Cincinatti, OH. Han, J. and Kamber, M. (2000), Data Mining: Concepts and Techniques, Morgan Kaufmann Publisher, San Francisco, CA. Hand, D., Heikki, M. and Smyth, P. (2001), Principles of Data Mining, MIT Press, Cambridge, MA. Helms, G.I. and Mancino, J.M. (1999), “Information technology issues for the attest, audit, and assurance services functions”, The CPA Journal, May, pp. 62-3. Hoffman, C. (2001), “XBRL: standardized electronic financial reporting”, Internal Auditor, pp. 46-51, August. Intacct Corp. (2000), “Web-based audit program is developed with Deloitte”, Wall Street Journal, pp. A13, 26 June, available at: www.intacct.com/service/auditing.phtml Kanter, H.A. (2001), “Systems auditing in a paperless environment”, CPA Journal, January/March, pp. 43-7. Kogan, A., Sudit, F. and Vasarhelyi, M. (2000), “Some auditing implications of Internet technology”, available at: http:/lwww.rutgers.edu/accounting/raw/miklos/tcon3.htm Lee, S.J. and Keng, S. (2001), “A review of data mining techniques”, Industrial Management & Data Systems, Vol. 101 No. 1, pp. 44-6. McFadden, F.R., Hoffer, J.A. and Prescott, M.B. (1999), Modern Data Management, Addison-Wesley Educational Publisher Inc., Reading, MA. Microsoft Corp (2002), DCOM, available at: www.Microsoft.com/com/tech/dcom.asp (accessed 28 March 2003). Moscove, S.A., Simkin, M.G. and Bagranoff, N.A. (2000), Core Concept of Accounting Information System, Wiley, New York, NY. Murthy, U.S. and Groomer, S.M. (2002), “Enhancing an XML schema for accounting systems to facilitate continuous auditing”, paper presented at the Fifth Continuous Assurance Symposium, Rutgers Business School, New York, NY, November. Murthy, U.S. and Groomer, S.M. (2003), “A continuous auditing web services (CAWS) model for XML based accounting systems”, paper presented at the University of Waterloo Symposium on Information Systems Assurance, 31 October-1 November, Waterloo, CA. Needleman, T. (2001), “Audit tools”, The Practical Accountant, March, pp. 38-40. Nigrini, M.J. (2000), Digital Analysis Using Benford’s Law: Tests and Statistics for Auditors, Global Audit Publications, A Division of ACL Services Ltd, Vancouver. Object Management Group (2002), OMG IDL, available at: www.omg.org/gettingstarted/ omg_idl.htm (accessed 28 March 2003). Rezaee, Z., Ford, W. and Elam, R. (2000), “Real-time accounting systems”, Internal Auditor, April, pp. 63-7. Rud, O.P. (2001), Data Mining Cookbook, Wiley, New York, NY. W3C Web Services Architecture Working Group (2002), Web Services Architecture Requirements, W3C Working Draft 19 August, available at: www.w3.org/TR/2002/ WD-wsa-reqs-20020819/

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Five star hotels in Antalya region of Turkey ¨ zdemir A. Akin Aksu and Bahattin O School of Tourism and Hotel Management, Akdeniz University, Antalya, Turkey Abstract Purpose – To investigate nine organizational dimensions that enable individual learning in hotel establishments and to note interests of tourism professionals to the learning of organizations subject. Design/methodology/approach – Questionnaire technique was used for the sample of 129 staff working in three different five-star hotels in Antalya. For data evaluation, SPSS program was used. Findings – According to the findings, the highest pure value and variance explanation rated dimension was that of behavior of superiors. This result shows the importance and role of superiors in hotel establishments. In addition to this, the majority of the sampled staff engaged in teamworking and made dialogue with colleagues, but with some considerable occurrence; sampled staff rarely had training and rewards. Research limitations/implications – The results are limited within the sampled staff working in three different five-star hotels, so the results cannot be generalized, but the scale in the study can be used in other researches. Originality/value – This study can be evaluated as useful information and guidance for tourism industry professionals regarding learning of organizations. Keywords Learning organizations, Hotel and catering industry, Organization culture, Learning, Turkey Paper type Technical paper

Managerial Auditing Journal Vol. 20 No. 4, 2005 pp. 422-441 q Emerald Group Publishing Limited 0268-6902 DOI 10.1108/02686900510592098

1. Introduction With globalization, the world has entered into a new and fast transition process. Globalization omits national borders and makes new ideas spread throughout the world. In the past, experiencing new developments may have taken years to cover the world, but now with the ubiquitous developments in technology and communication, this process has become much shorter. Globalization also has social and economic effects; both for organizations and their staff. The market surroundings of organizations are complex and the competition between rivals is fierce. Customers want quality goods and services, with affordable prices and delivered in acceptable time periods. The needs, expectations, and preferences of customers can change easily and fast. In today’s world market, there are many rival competitors, and their profiles can be very different from those of the past. New technologies can arise in a short period of time, and the life cycle of goods is invariably shorter. In this new scene, organizations must have new structures that are suitable to adapt to globalization and the new global marketplace. Clearly, it will not be sufficient to operate with traditional organizational structures in this complex and fast changing global market. The realization of continuous uncertainty and awareness of multivariants while decision making, each option with

possible opportunities and threats, is vital for all organizations. Such information can be used to great advantage in a harsh competitive environment. In today’s world “information” can be regarded as the most important input for any organization. Most contemporary researchers, however, think that the basic competitive advantage will be in acquiring and applying information, rather than tapping capital and natural sources. Thus, having and using updated and useful information is vital for organizations. In other words, in today’s business communities the organizational source is “information” (Gu¨mu¨s¸, 2001, p. 299). Besides getting and using the information, organizations must pass on information and retrieve feedback about their practices. C¸elik (1998, p. 114) identifies that today’s organizations must be learning organizations. Development of the organization and individual are both critical. This vision must begin with the individual and permeate to the whole organization (C¸elik, 1998, pp. 114, 115). Since the 1990s, the learning process in the organization has become vital for strategic efficiency within the global perspective (Osland and Yaprak, 1995, p. 53). 2. Learning organization literature According to Garavan (1997, p. 18), there are two types of studies that are related to learning in organizations: one evaluates learning in organizations as variables, the other as metaphors. The first sees learning in organizations as being designed within the organization and having an effect on organizational outputs. The second evaluates organizations as cultures and identifies learning in the organization as an extended part of culture. According to Steiner (1998, p. 194), the learning organization context can be used in understanding organizational behavior; and reflects the ideology of organizations since the 1990s. Steiner states that the learning organization context takes the place of organizational culture, and endeavors to explain the processes related to structural changes in organizations. Gupta and Thomas (2001, pp. 502, 503) argue that different disciplines have input for the learning organization. Each discipline has its own perspective for the learning organization. Gupta and Thomas (2001), drawing on the work of Easterby-Smith (1992), prefer that psychology, sociology, management, strategy, production management, and cultural anthropology have valuable inputs for the learning organization. Appalbaum and Gallagher (2000, p. 43) concur with these inputs for learning organizations, and developed information related to this notion (Table I). Smith and Tosey (1999, p. 70) suggested that it is possible to find many studies related to learning organizations, but in developing, calculating, and concluding a return on investment for learning organizations, such studies could not provide sufficient input. Garavan (1997) also argued that there are deficiencies in the literature regarding learning organizations, namely, lack of shared learning between organizations, lack of transparency in the learning process, the contents of organization climate and culture, the effects of organization capacity on the learning organization, the role of teamworking in the learning organization, and whether or not the learning organization is a variable or metaphor. This study investigates individual learning, organizational culture, and organization climate in the learning organization. In this context – without giving any details regarding studies that see the learning organization as variables or metaphors – it is preferable to examine the learning organizational context, organizational culture, and organizational climate in the related literature.

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Discipline

Input

Psychology and organizational development

Hierarchical organization, values, learning styles, dialogues Information, memory, holism, false correcting, getting information, one- and two-loop learning Power structure and effects of hierarchy, conflict is normal, ideology, effects of actors Interaction of organizations and the environment, improving learning levels is desired, importance of direct experience, level of learning in the population Importance of productivity, learning curves, internal and external learning sources, connections with production design Culture, beliefs, potential cultural superiority as reason and actor affects on learning organization

Management

424

Sociology and organization theory Strategy Production management

Table I. Inputs of different disciplines on learning organization context

Cultural anthropology

Source: Appalbaum and Gallagher (2000, p. 43)

2.1 Learning organization context Appalbaum and Gallagher (2000, pp. 40-56) evaluate the new world order, and suggest that new situations cause new applications for organizations, such as: . it would not be sufficient to make decisions based solely on accounting information; . investing in technology is still important, but not enough. Having information from their members will be more important for developing organizations; and . for competing in the marketplace, organizations must know where to get information, how to share it, how to store it, how to reach the stored information, and how to use it. For all these processes, organizations will need informed members. The primary issues in a fast changing and complex environment are “learning” and the “learning organization”. So what is learning? Can organizations learn? How does it work? According to Robinson et al. (1997, p. 28), all organizations are learning organizations. Here, the critical question is: is their learning enough? In fact, there is always learning, but the type or level of learning has to be explored. O¨g˘u¨tveren (citing Luthans, 2000, p. 649) saw the learning concept as continuous changes emerging from reinforced applications and experiences. According to this definition “learning” has three important aspects: . learning needs behavioral change. This behavioral change can be negative or positive; . behavioral change emerges from experience and applications; and . there must be continuous change. The learning organization concept has an important place in management organization literature. There are numerous studies published in disparate sources

(Hong, 1999; Keating et al., 1996; Garavan, 1997; Robinson et al., 1997; Smith and Tosey, 1999; Lam, 2001). The early serious studies of the learning organization were made by Argyris and Schon in 1978 titled “Organizational Learning” and in 1990 by Peter Senge titled “The Fifth Discipline”. The learning organization concept was based on system theory of the 1950s. With the development of system thinking, organizations were evaluated as living things. Senge adapted system theory to the learning process (O¨zgener, 2000, p. 1). Argyris and Schon (1996, p. 16) proposed that learning in organizations occurs when organization members face up and try to solve a problem in the organization. During the solving process, the members will find a gap between the expected and the realized results of an act. With the thinking process and new acting, they will give a response to this gap. New acting will undoubtedly cause the reorganization’s activities to match up with the outputs. To Senge (1990, p. 14), the learning organization is the organization that has continuous future creating capability. Kim (1993, p. 38) has a similar definition: the “learning organization has effective acting capacity”. Fiol and Lyles (1985, p. 803) propose that the learning organization provides better information and meaning. Pedlar et al. define the learning organization as one that enables learning of all its members and has contunious transition capability (Garavan, 1997, p. 25). Ho (1999, pp. 117, 118) has a similar definition to Pedlar et al. (1991) but adds that in the learning organization all the members’ input must be needed, as in total quality management. From these definitions the main points can be summarized as: (1) The learning organization needs to change the current applications and the views of organizational members. (2) The learning organization has direct bearing on the future of the organization. (3) The learning organization needs changes to improve. (4) The learning of all members in the organization must be easier. (5) The input of all members is needed. According to Tsang (1997, p. 74), the learning organization embraces an organization as a whole, and that this definition is different from organizational learning. For the differences between the learning organization and organizational learning, Bayraktarog˘lu and Kutanis¸ (2002, p. 239) suggest that organizational learning is an attempt “on the way to” the learning organization. To Strati (2000, p. 49), organizational learning (citing Argyris and Schon) is changing the current theories and developing them further. Daft (2001, pp. 25-8) compared the learning organization to one with effective performance with respect to structure, duties, systems, culture, strategy, and environment (see Table II). Daft (2001) sees learning organizations as open systems in a continuously changing environment. With more distance between top management and the workers in an organization, the vertical structure is not suitable for learning organizations. Process-based division will, consequently, be more suitable than function-based division in learning organizations. Moreover, self-directed team members derive from different functional units. In learning organizations, all staff have enriched roles rather than routine roles. Their roles are continuously defined and adapted, and there are few rules and

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procedures. Staff endeavor to solve problems by themselves. Sharing of information in the whole organization is a basic rule in the learning organization, where everyone tries to make information flow easier. In learning organizations, all staff, suppliers, customers and, even, rivals are included in the strategy-defining process. The culture in the learning organization is supportive, transparent, promoting equality, continuous improvement, and change. ¨ zgener (citing Luthans, 2000, p. 7) compared the traditional organization with the O learning organization (Table III). 2.2 Transition steps of the learning organization McGill and Slocum identified four types of organizations (Appalbaum and Gallagher, 2000, p. 53): (1) the organization that knows; (2) the organization that understands; (3) the organization that thinks; and (4) the organization that learns (O¨zgener, 2000, pp. 2, 3). The organization that knows adapts learning to changes in its environment. This kind of organization has a loop-learning and adaptation strategy. It can be especially successful in mature and static environments. It will be successful until it does not need learning. It only adds something to current goods and services as a response to change. The organization that knows, believes that it knows the best; and there is always one best way to do things (Seymen and Bolat, 2002, pp. 100, 101). This organization expects full obeyance without question from its staff. This organization can be described as the classic management approach (Koc¸el, 1999, p. 338). This is typified as an organization that understands and gives importance to human beings that brings organizational members together, gives the feeling of belonging, and has shared values. In this type of organization, the organizational culture takes the place of strict control and rules. However, there is a barrier for learning as it accepts only the change at a management level. It believes that there are optimum ways of doing things (Koc¸el, 1999, p. 338). This is an organization that thinks, brings speedy solutions and analysis to problems, and acts fast. In order to realize this, training is given to managers. Their main deficiency is forgetting the basic problems, while busy with developing faster solutions. This situation narrows the focus of their management and results in disadvantage for their learning. Their basic approach is to see management techniques as problem-solving

Table II. Comparison of the learning organization with the effective performance organization

Basic paradigm Environment Organization structure Duties System Strategy Culture

Effective performance organization

Learning organization

Mechanical system Constant Vertical Routine duties Formal Competitive Rigid

Organic system Changeable Horizontal Enriched roles Shared information Cooperative Adapted

Source: Adapted from Daft (2001)

Top management decides what to do. The rest of the organization acts according to top management decisions Every person is responsible for himself/herself; generally focused on individual skill development Conflicts are solved by using power, hierarchical influence, and pressure The leader’s role is defining vision, reward and punishment system, and detailed control of personnel activities

Designing and practising the decisions

Leadership and motivation

Source: O¨zgener (2000, p. 7)

Solution of conflict

The nature of organizational thinking

Vision is defined by top management

General orientation

Traditional organization

Every person thinks about his/her colleagues and plans their work accordingly Conflicts are solved by integration of different perspectives of personnel at different levels, coordination, and teamworking The leader’s role is forming vision, empowerment. By using charasmatic leadership, the leader encourages effective decision making

There is a shared vision, but top management is responsible for developing this vision Decision making and practise can be seen at all levels of the organization

Learning organization

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Table III. Differences between the traditional organization and the learning organization

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tools of organizations. If there are some problems, then the view held is that organizations will develop models and systems for solutions (Koc¸el, 1999, p. 338). However, the organization that learns has a different approach to change. It sees changing itself and learning from changing as a component of cultural values and its structure. In this type of organization, change is evaluated as an input for learning. In addition to this, it enables individual development opportunities. Learning organizations provide transparent and continuous relations with their customers (Appalbaum and Gallagher, 2000, p. 53). 2.3 Learning organization process Huber (1991, pp. 88-115) researched the learning organization process and concluded that this process has four components: (1) getting information; (2) distributing the information; (3) interpreting the information; and (4) organizing the memory of information. Lam (2001, pp. 213, 214) gives examples of this process, specifically when there is a change of the working conditions or a problem occurs, individuals will try to get information to help with their individual experience. Getting information can be through experience, by observing other organizations’ strategies, by benchmarking, or by examining rival applications, or simply by learning from past mistakes. After getting information, distribution of the information must follow. Distribution of information takes place internally and externally. Written, oral or visual reports, personnel rotation programs, training programs, and standardized procedures can be effective in information distribution. With information distribution, individual information turns into common information and is open to every individual in the organization. After getting and distributing information, the interpretation of that information comes as a third step. Interpretation of information can be named as a process. In order to realize this process, transparent interpretations of different individuals must be compared and matched. Agreement and disagreement can be easily defined. The last component of the learning process is the flowing of the shared and interpreted information into the organizational memory. Hegberg (1981, p. 6) asserts that organizations do not have brains, but do have conscious systems and memories. Hegberg (1981) also purports that just like human beings, organizations can change and develop their personalities, habits, beliefs, and ideologies over time. Organization members can be the source of change, but organization memories preserve certain behaviors, mental maps, norms, and values. By time, successful stories bring repetitive behavior. The main reason for this situation is organizational memory. Organizational memory is interested in preserving information in the organization. Physical location, working procedures, individuals, and culture are examples of preserving information in the organization (Hong, 1999, p. 176). Organizations can learn in different styles. In the literature, generally there are two types of learning discussed, first, “one-loop learning”, and second, “two-loop learning”. In one-loop learning, the organization is trying to learn without any change in its basic assumptions. According to this understanding, the learning process within the organization is defining the problems and correcting them. Most organizations deal

with one-loop learning (O¨zgener, 2000, p. 4). In two-loop learning, the organization reevaluates its targets, nature, values, and beliefs. This kind of learning usually involves changes in the organizational culture. Learning organizations, however, use two-loop learning. Murray (2002, p. 239) uses adaptive learning and generative learning in explaining such learning styles. Adaptive learning is based on defining, interpreting, and giving responses to warnings from outside. Adaptive learning means level-by-level learning; in other words, learning by improving outputs. In generative learning, there is a new way of looking at life, understanding customers, and managing the organization. In some ways, learning within the organization can be prevented. Steiner (1998, p. 194) investigated the barriers confronting organizational learning and highlighted the personnel dilemma. Here, personnel dilemma means not deciding between two alternatives. Organizational dilemma needs this kind of dilemma. Examples of such dilemma include: . misunderstanding of the individual’s metaphors by management; and . lack of a consistent management style in a change of management ideology. Gupta and Thomas (2001, p. 504) (citing Levinthal and March) state that there are three types of learning blindness: focusing on the short term rather than long term, dealing with small problems rather than big problems, and focusing on success instead of faults. 2.4 Individual learning in organizations: In organizations, learning can be at different levels; such as: . individual learning; . team learning; . organizational learning; and . interorganization learning Hjalager (1998, p. 222) differentiated organizational learning and interorganizational learning, in that organizational learning can be done by individuals, it comprises physical or transparent symbols, and it means individual conscious learning. Interorganizational learning ensues from interactions emerging during a common project among different organizations. Allen (1998, pp. 55-75) concluded that there is no guarantee for individual learning, together with organizational learning, but teamworking will support organizational learning. Cunningham and Iles (2002, pp. 477-92) considered that for teamworking, important issues include: . team members must understand and believe in the targets; . individual learning must be shared and discussed in the group; . teamworking must be seen as an opportunity for group learning; and . management must make learning as a team easier. Senge (1990, p. 10) regarded teamworking as vital for contemporary organizations because their basic learning units are teams rather than individuals. Generally, organizations must share their information and experiences. During this process,

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organizations will learn through the help of their members and groups (Teare, 1997, p. 315). According to Osland and Yaprak (1995, p. 53), when new information reaches other organization members, this means changing individual learning into organizational learning. The learning of organizations begins at the individual level, shared at group level and recorded into organizational memory and used when needed. Argyris and Schon (1996, p. 20) argued that without individual learning there is no organizational learning. Senge (1990, p. 236) had a similar approach and stated that organizations learn with the help of individuals. Senge (1990) also added that individual learning does not guarantee organizational learning, but it is impossible to see organizational learning without individual learning. Simon (1991, p. 125) argued that the learning of individuals brings about, first learning by the organization members, and second, resulting from the recruitment of new members to the organization comes new information. Hurley (2002, p. 271) states that for the learning organization there must be learning individuals in the organization. This means that a suitable process and structure for learning must be settled in the organization. Hurley (2002, p. 276, 277) summarized the required steps for encouraging organizational learning as: . there must be some warnings and motivation change and learning; . preventing stress and threats in order to increase organizational learning is needed; . encouraging experiences is important; and . seeing faults as a learning opportunity is vital. 2.5 Organization culture and learning climate in learning organizations One of the most important factors that support individual and organizational learning is the organizational culture. Learning must be at the center of the organizational culture in learning organizations. Otherwise, it is not possible to manage the opportunities and changes (Gu¨mu¨s¸, 2001, p. 303). For learning organizations, the support of organizational culture, together with values and incentives, are needed. Otherwise, it is hard to say that the organization is learning (Garavan, 1997, p. 26). If organization culture is robust, then it can be argued that a resilient culture will harmonize learning, and it has a social completion effect (Meek, 1988; Gregory, 1983). Here, culture means sharing of values, social ideals, and beliefs by organization members (Smircich, 1983, p. 344). Schein (1985a, p. 17) suggests that strong culture has more organizational efficiency than weak culture. According to Schein (1985b, p. 2) a strong culture can be formed by organization leaders; whereas Meek (1988) and Gregory (1983) disagree with Schein and stated that forming or managing culture is impossible. According to Daft (2001, pp. 322-4), the main values that can be seen in organization culture are: . the total is more important than the components; . equality is the basic value; and . culture encourages taking risks, changes and development. Pool (2000, pp. 373-8) concurs with Daft (2001) and purports that organizational culture is a basic fundamental for the organization management system. Also, Pool (2003)

reports in his work that with a supportive organizational culture, the degree of organizational learning increases. For a supportive organizational culture, there is a need for transparent communication, newness, challenged work, and cooperation among workers. Cunningham and Iles (2002, pp. 477-92) state that in order to increase organizational learning, forming a learning climate is important; they go on to argue that organization culture and organization climate are, however, different concepts. Organizational culture is related to organizational values, beliefs and moral values, but organizational climate is related to practices, procedures, awards, and perception of organizational atmosphere by the organization members. Honey and Mumford (1996, pp. 95-101) describe organizational climate as the encouraging behaviors and applications dedicated to continuous development. According to Honey and Mumford (1996) for a positive organizational climate, managers must do the following: . being a model in their behavior and practices; . planning learning opportunities; . integrating learning into organizational processes; and . behave like a learning champion. Slater and Narver (1995, pp. 63-74) identified five important components in learning organizations. The first two are related to organizational culture; with the others being related to organizational climate. Culture components are market orientation and entrepreneurship, and climate components enable leadership, organic and open structure, and a decentralized planning approach. 3. Aim and content of this research Individual learning means taking risks, perception of changes, coping with changes, having new experiences, and using experiences. The organizational culture must enable and support individual learning, form transparent communication and cooperation, and develop trust among staff. For supporting individual learning, the organizational climate is an important aspect. For managers, forming an appropriate organizational climate becomes vital on the way to a learning organization. Managers must make learning easier in their organizations. With this assumption, in order to investigate organizational dimensions that enable individual learning, this research was commenced. A questionnaire was used. Completed answers were collected from 167 staff working in three different five-star hotels, operating in the city centre of Antalya. However, 38 questionnaires were omitted because of some deficiencies. Finally, 129 questionnaires were evaluated. 4. Methodology The methodology comprised data collection, reliability testing and validity measuring of the scale used, and analysis of the data collected. 4.1 Data collecting tool The questionnaire consisted of three parts. Resulting from a literature review, a scale was developed, to define organizational dimensions that enable individual learning in hotel establishments. Related to the scale, sampled staff were asked to answer

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questions with a five-point scale (ranging from 1 ¼ I strongly disagree to 5 ¼ I strongly agree). In the second part, sampled staff were asked to answer questions/statements related to believing in learning new things during their work, frequency of changes in their work, frequency of reward by their superiors, and frequency of training given by their superiors, frequency of teamworking, and frequency of having a dialogue with their colleagues. Similarly, the answers to the questions/statements were using a five-point scale (ranging from 1 ¼ I strongly disbelieve to 5 ¼ I strongly believe); and for some questions/statements (ranging from 1 ¼ never to 5 ¼ always). The last part comprises demographic questions to address aspects of jobs undertaken, department type, educational situation, age, working years in the current position, working years in the same hotel, and working years in the tourism sector. 4.2 Reliability and validity of the scale The questionnaire explored aspects of organizational dimensions that enable individual learning using 39 questions/statements. Resulting from an initial pilot study in the tourism sector, using reliability analysis, 12 original questions/ statements were omitted from the final questionnaire. The remaining 27 questions/statements have an a value of 0.85. The scale is reliable. For validity of the scale, a structure validity analysis was used. For the structure validity analysis, the answers of sampled staff to the question of whether they believe that they learn new things or not is made against a relation with the sampled staff’s average score. For each sampled staff, the total score was calculated according to his/her answer to each question/statement, and this score was divided by the number of questions/statements. This gives the average score for each sampled staff. The relation between the beliefs of sampled staff regarding learning new things and the average score from the scale was calculated using a correlation coefficient. Between these two variables, there is a direct proportion at the 39.2 percent level. This coefficient is statistically meaningful at the 0.000 level. This relation can also be seen from the ANOVA (See Table IV). From the ANOVA, together with the Scheffe test results, there are meaningful differences in the average scores between new things (“don’t believe in new things”) and the sampled staff that have “no idea”. From the ANOVA the sampled staff that “believe”, “don’t believe” and “have no idea” regarding learning new things can be compared to the differences between them. But the ANOVA could not identify where the difference lay (Bas¸, 2001). For details of which group (“believe in”, “don’t believe in” or “have no idea”) has the difference for each scale proposal, post-hoc analysis and the Scheffe test were used. Post-hoc analysis is generally used after the ANOVA to identify which group has the difference from the dependent variable perspective (Sweet and Grace-Martin, 2003). Believe in

Table IV. Results of ANOVA and Scheffe test

Learning new things during work

0.000

3.67a

Average scores for the groups Have no idea Do not believe in 3.60a

3.15b

Note: a and b show meaningful differences at 0.05 level between the groups according to the Scheffe test

As seen from Table IV, the “difference” creating group is the “believe in” group. They received a higher score than the others. This result supports the higher average score for those who learn more new things. 4.3 Analysis The SPSS 10.0 software program was used. In order to have descriptive statistics, frequencies, percentages, average scores, and standard deviations were calculated. Regarding demographic aspects of the sampled staff and variables such as “learning new things during work”, “making dialogue with colleagues”, “teamworking”, “having training”, “rewarding”, “changes in work”, “frequency”, “percentage distributions”, and average scores and standard deviations of results were calculated. Next, factor analysis was undertaken to identify organizational dimensions to enable individual learning. To define whether variables such as “making dialogue with colleagues”, “teamworking”, “having training”, “rewarding”, and “changes in work” have influences on average scores, the ANOVA and Scheffe tests were used.

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5. Findings The findings are shown under the headings of “demographical findings”, “descriptive analysis”, “factor analysis”, “dialogue with colleagues”, “teamworking”, “having training”, “rewards”, and “changes in work variables enable individual learning”. 5.1 Demographical findings In Table V, jobs, departments, and educational levels of sampled staff are depicted. The majority of the sampled staff belong to lower levels of the organization (approximately 85 percent). From the sample, nearly half of them (52 percent) are working in food and beverage, 20 percent in housekeeping. Regarding education levels, Number

Percentage

Job Upper level manager Middle level manager Down level staff

1 18 110

0.8 14.0 85.3

Department Front office Food and beverage Housekeeping Security Technical service Sales and marketing Accounting Other

5 67 25 8 9 9 3 2

3.9 52.3 19.5 6.3 7.0 7.0 2.3 1.6

Education level Primary school Secondary school Lycee University (undergraduate) Graduate

30 18 58 20 2

23.4 14.1 45.3 15.6 1.6

Table V. Demographical aspects of sampled staff

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Table VI. Descriptive statistics regarding learning new things during work, making dialogue with colleagues, teamworking, having training, rewarding, changes in work

45 percent are lycee graduates. The ratio of undergraduate and graduates is only 22 percent. Regarding the working years in the tourism sector, in the current establishment, in the current job, it can be seen that on average the staff member is 33 years old, has been working in the current job for 12 years, working in the current establishment for 8 years, and working in the tourism sector for 11 years. 5.2 Descriptive statistics Descriptive statistics are given in Tables VI and VII as “learning new things during work”, “making dialogue with colleagues”, “teamworking”, “having training”, “rewards”, and”changes in work”. In Table VI, of 129 sampled staff, 82 perceive that they learn new things and 32 of them (approximately 25 percent) “don’t believe” this. Moreover, 15 of them have “no idea about it”. More than half of the sampled staff stated that they can frequently have dialogue and teamwork with their colleagues; whilst 41 percent stated that they rarely have training, 68 percent have rewards, and 50 percent have changes in work. Average scores and standard deviations of statements in the scale are given in Table VII. Average scores in the table can be seen as indicators of sampled staff, being positive or negative to the statement in the scale. Here, a low average score means a negative, and a high average score means a positive perception. In other words, low average scores mean that sampled staff disagree with the statement, high average Number

Percentage

Learning new things during work Do not believe in Have no idea Believe in

32 15 82

24.8 11.6 63.6

Making dialogue with colleagues Rarely Sometimes Often

12 40 77

9.3 31.0 59.7

Teamworking Rarely Sometimes Often

31 27 69

24.4 21.3 54.3

Having training Rarely Sometimes Often

53 42 33

41.4 32.8 25.8

Rewarding Rarely Sometimes Often

86 25 16

67.7 19.7 12.6

Changes in work Rarely Sometimes Often

64 43 22

49.6 33.3 17.1

Scale proposals Generally superiors share their knowledge with me My colleagues share their knowledge with me I feel that I am free in my work My suggestion related to work can be rewarded with high possibility Superiors take my suggestions into consideration I believe that I can solve problems related to work I have trouble in getting the information from my work I definitely know the vision of my organization I definitely know the mission of my organization I believe that everyday I will learn new things in the organization In our department we can cooperate with colleagues I have opportunity to try new things in my work I can practice my new knowledge related to my work I wish everyday I will face new things in my work My work must be challenging I can easily communicate with superiors I cannot do anything related to my work without knowledge of my superior I can easily communicate with the colleagues in other departments My work is important in reaching whole organization targets Behaved equally to everyone I do not care about the problems outside my work I trust my organization All personnel are acting with solidarity I believe that my superiors respect me All personnel respect each other in the hotel I can plan my work and evaluate the results My responsibility to my organization is limited to my work

Average

Standard deviation

2.98 3.99 3.20

1.34 1.03 1.38

2.64 3.41 4.20

1.19 1.18 0.86

2.81 3.60 3.67

1.27 1.22 1.14

3.85 4.32 3.50 3.89 3.41 4.19 3.43

1.20 0.84 1.29 1.14 1.30 0.97 1.29

2.84

1.34

4.11

1.08

4.27 2.75 3.02 3.87 3.39 3.49 3.84 4.21

0.93 1.49 1.35 1.24 1.29 1.25 1.03 0.77

3.33

1.48

scores mean they agree with the statement. In addition to these, standard deviations give an explanation of how the observed scores range from the average scores. Table VII, shows “cooperation with colleagues”, “my work is important in reaching whole organization targets”, “I can plan my work and evaluate the results”, “I believe that I can solve problems related to work”, and “I can easily communicate with the colleagues in other departments”. These statements have the highest average scores. In addition to these, “equal behavior toward everyone”, “I have trouble getting information out of my work”, “I can’t do anything related to my work without knowledge of my superior”, “generally superiors share their knowledge with me”, statements have the lowest average scores of between 3 and 4. 5.3 Factor analysis Factor analysis was made for 27 proposals in the scale, in order to define individual learning dimensions This is shown in Table VIII. Principal component

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Table VII. Descriptive statistics related to scale proposals

Table VIII. Factor analysis results 0.537

0.774

0.757

0.656

2.896 10.725

0.744

0.691

0.774

2.091 7.745

0.847 0.864

2.044 7.569

0.715

0.715

1.680 6.223

0.522

0.793

1.620 6.001

0.633

0.872

1.515 5.612

0.551 0.724

1.434 5.311

0.863

1.301 4.819

2. Factor 3. Factor 4. Factor 5. Factor 6. Factor 7. Factor 8. Factor 9. Factor

436

Pure value 4.84 Variance explanation rate (percent) 16.607 Proposals Generally superiors share their knowledge with me 0.558 My colleagues share their knowledge with me I feel that I am free in my work 0.494 My suggestions related to work are likely to be rewarded 0.731 Superiors take my suggestions into consideration 0.729 I believe that I can solve problems related to work I have trouble in getting information out of my work I definitely know the vision of my organization I definitely know the mission of my organization I believe that everyday I will learn new things in the organization 0.645 In our department we can cooperate with colleagues I have opportunity to try new things in my work I can practice the new knowledge related to my work I wish everyday I will face new things in my work My work must be challenging I can easily communicate with superiors 0.438 I can not do anything related to my work without knowledge of my superior I can easily communicate with the colleagues in other departments My work is important in reaching whole organization targets Equal behavior toward everyone 0.628 I do not care about problems outside of my work I trust to my organization 0.672 All personnel are acting with solidarity I believe that my superiors respect me 0.730 All personnel respect each other in the hotel I can plan my work and evaluate the results My responsibility to my organization is limited to my work Total variance explanation rate 0.70612 KMO (Kaiser-Meyer-Olkin measure of sampling adequency 0.713 Bartlett’s test of sphericity 1124.09 (0.000)

1. Factor

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analysis was used as a descriptive factor analysis. Also, factor load scores were used. Factor load scores define the location of proposals in the scale. In order to explain the results more easily, the Varimax rotation method was used. The results of factor analysis to 27 proposals, nine dimensions were found. In Table VIII, the nine dimensions and their pure values, variance explanation rates, and factor load scores are given. The KMO (Kaiser-Meyer-Olkin measure of sampling adequency) score was found as being satisfactory (at 0.713 level) and Bartlett’s test of sphericity was 1124.09. This was statistically meaningful at the 0.000 level. The total variance explanation rate of nine dimensions was at the 70 percent level. As seen from Table VIII, the pure value of the first factor was 4.84 and the variance explanation rate was the 16.607 percent level. Statements relating to the first factor are: “generally superiors share their knowledge with me”, “I feel that I’m free in my work”, “my suggestion related to work can be rewarded with high possibility”, “superiors take my suggestions into consideration”, “I believe that everyday I will learn new things in the organization”, “I can easily communicate with superiors”, “equal behavior toward everyone”, “I trust my organization”, and “I believe that my superiors respect me”. This factor is named as the “behavior of superiors”. The pure value of the second factor was 2.896; and the variance explanation rate was at the 10.725 percent level. Statements related to the second factor are: “my colleagues share their knowledge with me”, “in our department we can make cooperate with one another”, “I can easily communicate with the colleagues in other departments”, and “all personnel respect each other in the hotel”. This factor is named as the “behaviors of colleagues”. The pure value of the third factor was 2.091; and the variance explanation rate was at the 7.745 percent level. Statements related to the third factor are: “I believe that I can solve problems related to work”, “my work must be challenging”, and “I can plan my work and evaluate the results”. This factor is named as “managing problems”. The pure value of the fourth factor was 2.044, and the variance explanation rate was at the 7.569 percent level. Statements related to the fourth factor are: “I definitely know the vision of my organization” and “I definitely know the mission of my organization”. This factor is named as “knowing the vision and mission”. The pure value of the fifth factor was 1.680, and the variance explanation rate was at the 6.223 percent level. Statements related to the fifth factor are: “I don’t mind the problems outside of my work” and “all personnel are acting with solidarity”. This factor is named as “dealing with problems outside the work and acting with solidarity”. The pure value of the sixth factor was 1.620, and the variance explanation rate was at the 6.001 percent level. Statements related to the sixth factor are: “I have trouble in getting information out of my work” and “my work is important in reaching overall organization targets”. This factor is named as “getting information and seeing the whole”. The pure value of the seventh factor was at the 1.515 percent level. Statements related to the seventh factor are: “I can’t do anything related to my work without the knowledge of my superior” and “my responsibility to my organization is limited with my work”. This factor is named as “taking responsibility”.

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The pure value of the eighth factor was 1.434, and the variance explanation rate was at the 5.311 percent level. Statements related to the eighth factor are: “I have opportunity to try new things in my work” and “I can practice my new knowledge related to my work”. This factor is named as “practising learned things”. The pure value of the ninth factor was 1.301, and variance explanation rate was 4.819 percent level. The statement related to the ninth factor is: “I wish everyday I will face new things in my work”. This factor is named as “experiencing new things”. 5.4 Influence of making dialogue with colleagues, teamworking, having training, rewards, changes in work enabling individual learning To define whether or not variables such as “making dialogue with colleagues”, “teamworking”, “having training”, “getting rewards”, and “changes in work”, have influence on average scores of the sampled staff, the ANOVA and Scheffe tests were applied. The results are shown in Table IX. According to these results, average scores (“rarely”, “sometimes” and “often”) change regarding “making dialogue with colleagues”, “teamworking”, “getting training”, “receiving rewards”, and “changes in work”. To determine which group is making the difference, the Scheffe tests were applied. According to the Scheffe tests those, “often having dialogue with colleagues” have a higher average. In other words, the differentiated one is “making dialogue often”. Related to “having training”, the differentiated staff member is (with low average) rarely having training. There is not a meaningful difference between “sometimes” and “often”. According to these results, “especially making dialogue with colleagues”, “teamworking” and “having training” variables have positive effects on enabling individual learning. Sometimes “receiving rewards” and “having changes in work” have the more positive influences. 6. Results and discussion This research explores organizational dimensions that enable individual learning in hotel establishments. Factor analysis identified nine dimensions: (1) behavior of superiors; (2) behaviors of colleagues; (3) managing problems; (4) knowing the vision and mission; (5) dealing with problems outside work;

Table IX. Results of the ANOVA and Scheffe tests

Making dialogue with colleagues Teamworking Having training Rewarding Changes in work

0.004 0.000 0.000 0.020 0.048

Rarely

Average scores Sometimes

Often

3.14a 3.17a 3.19a 3.42a 3.53a

3.38a 3.48a 3.75b 3.77b 3.66b

3.66b 3.69b 3.77b 3.72a 3.28a

Note: According to Scheffe test, a, b show meaningful differences between average scores at 0.05 level

(6) (7) (8) (9)

acting with solidarity; getting information and seeing the whole; taking responsibility; and practising learned things and experiencing new things.

Factor analysis identified that the highest pure value and variance explanation rated dimension was that of the behavior of superiors. This result shows the importance and role of superiors in enabling individual learning in hotel establishments. The literature, together with this research, showed that the tools for superiors to increase individual learning are making dialogue with colleagues, teamworking orientation, giving training, and rewarding. In addition to this, according to the findings of this research, the majority of the sampled staff engaged in teamworking, and made dialogue with colleagues; but with some considerable occurrence, sampled staff rarely had training and rewards. These results shows that caution must be taken when reviewing these findings. This situation may be influenced by the selection of sampled staff, or the staff may feel some inequality amongst their peers or may feel that they have a problem getting information. As a shortfall, this research was carried out with a sample of staff from three different five-star hotels operating in the Antalya city centre of Turkey so the results cannot be generalized, but can be used as an indicator for five-star hotels. Together with the limited number of sampled staff, the work in food and beverage and housekeeping can also be evaluated as an additional limitation to the research. The scale which was developed for this research can be used in other research. This research can serve as a pilot for future investigations. References Allen, B. (1998), Developing a Learning Organization, Pitman Publishing, London. Appalbaum, S.H. and Gallagher, J. (2000), “The competitive advantage of organizational learning”, Journal of Workplace Learning: Employee Counseling Today, Vol. 12 No. 2, pp. 40-56. Argyris, C. and Ve Schon, D.A. (1996), Organizational Learning: A Theory of Action Perspective, Addison Wesley, Reading, MA. Bas¸, T. (2001), Anket, Sec¸kin Yayincilik, Ankara. Bayraktarog˘lu, S. and Ve Kutanis¸, R.O¨. (2002), “Global integration of the turkish tourism sector: organizational learning perspectives”, paper presented at The Impact of Globalization on World Business in The New Millennium: Competition, Cooperation, Environment and Development Proceeding, Antalya. ¨ g˘renen Organizasyon Felsefesi: Tu¨rkiye’deki Bu¨yu¨k C¸elik, A. (1998), Ku¨reselles¸me, Bilgi C¸ag˘i Ve O ¨ lc¸ekli ˙Is¸letmelerde Yapilan Bir Uygulama, Altinci Ulusal ˙Is¸letmecilik Kongresi “2000’li O Yillarda ˙Is¸letmecilik Ve Eg˘itimi”, Akdeniz U¨niversitesi ˙Iktisadi Ve ˙Idari Bilimler Faku¨ltesi, Yayin No. 2, Antalya. Cunningham, P. and Ve Iles, P. (2002), “Managing learning climates in a financial services organization”, The Journal of Management Development, Vol. 21 No. 6, pp. 477-92. Daft, R.L. (2001), Organisation Theory and Design, South-Western College Publishing, Cincinatti, OH. Fiol, C.M. and Ve Lyles, M.A. (1985), “Organizational learning”, Academy of Management Review, Vol. 10 No. 4, pp. 803-26.

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