2010 - 57    Number 57, Year XV December 2010. Publisher  Faculty of Organizational Sciences - Belgrade Dean Milan Martić, Ph.D. Editor in Chief Aleksandar Marković, Ph.D. Editor of Internal Department Ondrej Jaško, Ph.D. Editor of International Department Jovan Filipović, Ph.D. Čedomir Nestorović, PhD, Faculty of Coimbra, Portugal Editorial Board: Dejan Petović, Ph.D., Faculty of Organizational Sciences, Belgrade Jasmina ]etković, PhD, Faculty of Economics, Podgorica, Montenegro Jasmina Omerbegović Bijelović, Ph.D., Faculty of Organizational Sciences, Belgrade dr Sonja Petrović - Lazarević, Ph.D., Department of Management, Monash University, Australia Milan Martić, Ph.D., Faculty of Organizational Sciences, Belgrade Goran Putnik, PhD, Univerzity of Minho, Portugal Mirjana Drakulić, Ph.D., Faculty of Organizational Sciences, Belgrade Miroslav Svatoš, Faculty of Economics, Chesh Milija Suknović, Ph.D., Faculty of Organizational Sciences, Belgrade Robert Leskovar, PhD, Faculty of Organizational Sciences, Kranj, Slovenia Siniša Nešković, PhD, Faculty of Organizational Sciences, Belgrade Roberto Biloslavo, PhD, Faculty for Management, Koper, Slovenia Vesna Milićević, PhD, Faculty of Organizational Sciences, Belgrade Stanka Setnikar Cankar, PhD, Faculty of Administration, Ljubljana, Slovenia Vinka Filipović, PhD, Faculty of Organizational Sciences, Belgrade Peter A. Delisle, Phd, Austin College Peter Bielik, Ph.D., Faculty of Economics and Management, Slovak Republic Milica Bulajić, PhD, Faculty of Organizational Sciences, Belgrade Sladjana Barjaktarović, PhD, Faculty of Organizational Sciences, Belgrade     Management is being regularly reviewed in DEST DEST - Department of Education, Science and Training of Australia Ulrich Periodicals Technical Editor Milivoje Radenković Andrej Novović Address Belgrade, Jove Ilića 154 Tel./fax. 381 11 3950 868 E-mail: manage¿fon.rs http://management.fon.rs/ Journal is published quarterly Printed by Sigra Star, Belgrade  CIP Katalogizacija u publikaciji Narodna biblioteka Srbije, Beograd ISSN 1820-0222 = Management (Engl. ed.) COBISS.SR-ID 112265484 Copyright © 2004 by Faculty of Organizational Sciences  CONTENTS Knowledge based economy the base of economic growthand development Sandra Jednak, Dragana Kragulj Project management and the creation of economic policyguidelines at the sub-national level Walter Scherrer Importance of strategic management accounting for bank management Snežana Knežević, Miloš Milosavljević, Veljko Dmitrović Budgetary changes at local level in Slovenia in crisis Uroš Pinterič Zero waste as a new concept for sustainable waste management Nataša Petrović, Sonja Išljamović, Veljko Jeremić Measuring competitiveness as a precondition of economic management Nikola Milović New paradigm of management: the commitment to innovation and sustainable competitive adventage Valentina Malešević Conceptual basis of policy of competitiveness under the conditions of the Slovak economics Jaroslava Hečkova, Alexandra Chapčakova, Ivana Butoracova Data envelopment analysis and its application in education Violeta Cvetkoska Knowledge Based Economy the Base of Economic Growth and Development UDC: 005.94 ; 330.341:005.336.4 Sandra Jednak1, Dragana Kragulj1 1Faculty of Organizational Sciences, Belgrade Economic development is a complex social process. Determination of factors that affect the economic growth and development, the way they work, the reasons some economiesare more developed than others, and why economies have different rates of economic growth are the issues of a number of studies. Analysing these topics, and according to the economic growth theories, the traditional determinants are found tobe the labour, capital and technology. However, knowledge is nowadays considered to be one of the factors of economic growth and development as well. The aim of the European Union is to build a knowledge-based economy, and hence the increased role of knowledge and new technologies. This paper analyzes the importance of knowledge as a factor of economic growth and development, and analyzes the results of building a knowledge-based economy in the European countries. investments, consumption, 1. Introduction Economic development is a complex social process in which every country tends to ensure a passage from the lower to the higher phases of economic developement. Economic developement is viewed as an indicator of the relationships between macroeconomic aggregates such as social product, national income, employment, accumulation, etc. Although no economic developement is possible without economic growth (there is no need for an inverse relation, i.e., the economic growth is possible to achieve without an economic development), it can be confined only to the growth in GDP and the per capita national income. In addition to the above mentioned elements, the economic development can be expressed by a set of structural and functional changes withing a particular economy, as well as by a succession of other economic and non-economic factors. It is in this sense that economic growth is defined as a multidimensional process. The change in the overall social structure is one of the basic components of economic growth and together with economic growth it ensures the growth of both the GDP and the national income. Similarly, economic development is necessarily oriented towards achieving certain goals that have to be brought into harmony beforehand, and can be sublimed into two most important ones: the developemnt of the economic potentials of the country and the improvement of the living standard of its population. Š9, p.306Ë The modern economic science insists on sustainable development. The sustainable development is defined as a development that ensures the satisfaction of the todays generations needs, however, without endangering the satisfacton of the needs of the future generations. Sustainable growth means an optimum balance among the economic, the social, and the environmental factors within an institutional framework. It is defined as a long-term, comprehensive, and synergetic process permeating all aspects (economic, social, cultural, ecological, and institutional) as well as all levels of life (local, regional, global). Š15Ë The three basic pillars of sustainable development are: a sustainable economic and technological development, a sustainable development of the society and the environmental protection. 2. Knowledge as factor of economic growth and development There are numerous factors of economic growth and development of a country or a region. They may be classed on the basis of various criteria and their impact can be analysed in detail. The most important factors are as follows: natural conditions (size of a country, geographical position of a country, natural resources ores, soil, forests, etc., pollution of the nature, climate, etc.); human resources and science (human resources quality, human resources potential, factor knowledge, quantity and quality of personnel training institutions, development level and efficiency of resarch operations, the development level of the information sector of economy, the extent to which information technologies are used, the quality of scientific personnel, information as key development resource, etc.): production, technics and technological change and innovation (production structure of economy, the overall production potential of the country, the level of manufacturing technics, the technical and technological progress, the type of technical progress, the rate of obsolescence physical and economic depreciation of technics, technological change and innovation, accumulation and reproductive potential of economy, organization and methods of managing economy, the level of infrastructure sophistication, etc.); agricultural production (prevailing agrarian relationships and their impact upon agricultural production, the processes of change in agriculture, etc.); socio-political factors (cultural heritage, historical heritage, tradition in economy, methods and institutions of social management, political system, the position of an individual in the society, social security, degree of democracy, ability to stand against different forms of pressures from the part of economically developed and politically influential countries, etc.); international environment (international economic environment, international labour division, the level and trends of international regional integrations, international economic organizations, international political environment, international and political alliances, itd.). The process of economic development in a given country and in a given period is affected not by individual factors, but by a set of factors, therefore the effects depend on their interaction. One individual factor, for example, may not have a significant impact upon the economic development of a country, however, within a set of other factors, its importance may be crucial. Using the economic analysis it is possible to select individual factors and highlight their impact, however, their importance can be evaluated only in a concrete situation (country, time, conditions), and together with the impact of the other factors. Certain factors of economic development can be grouped according to different criteria, depending of the objective of the analysis. The most frequent classifications in the modern economic literature, important from the point of view of the development strategy selection, observe the following criteria: territorial origins (endogenous and exogenous factors), type of operations (economic and non-economic factors), matter (material factors), immediacy of effects (primary and multiple: secondary, tertiary factors, etc.), the rate of volatility (strongly volatile, medium volatile, slightly volatile factors), measurability level (measurable and non-measurable), utility (positive and negative factors), relevance (relavant and irrelevant), priority (higher or lower level priority factors), up-to-dateness (historical and modern), etc. Such a variety of economic development factors with different impacts as regards the orientation, intensity and the length of time produce different impacts in different cases. The development level and the size of a country will affect not only the priority of factors but their impact as well. Their interaction makes the understanding the impact of each individual factor difficult; besides, many of them produce insufficiently measurable effects. The priority of factors cannot be given a priori. A higher level of priority is given to those economic development factors that produce a wider scope of effects, they work on a long-term basis, they are not subject to frequent changes and produce a strong positive impact upon the economy trends and development. Š9, p.311Ë Modern economic theory and practice views knowledge as one of the key factors of economic growth and development. Knowledge, in fact, can be said to have always been the driver of economic progress. New ideas, skills and competences resulting from knowledge have always been incorporated into new products, processes and organizational structure of companies. Schumpeter was the first to recognize knowledge as a structural component from an economic point of view, as well as its importance for the economy. He claimed that a new combination of knowledge is a key factor of innovation and entrepreneurship. Š2Ë The basic sectors responsible for knowledge generation are: education, research and development, art, media, information sector and information technologies. Depending on the sector, knowledge is analysed as production (research and development of new knowledge), dissemination (education, training and human resources development) and transfer (diffusion of knowledge and innovation). A development factor that is becoming increasingly important is the integration of science, education and information technologies. Š10Ë Some researchers maintain that knowledge can be viewed as an essential resource, product and system. The view of the knowledge as an input is related to investment into research and development, education and information technologies. As a product, knowledge is important in developing business services based on knowledge, as well as in the development of the new technology sector. It is implemented in improving the existing products and creating new ones. Š7Ë Science demands a system of knowledge. Different kinds of knowledge are required to achieve progress in a certain area. New technologies, i.e., information-communication technologies, are the instrument to generate and transfer knowledge. Owing to browsers, electronic databases and various softwares, the scientists and researchers enjoy a faster access to information, development and storage of results, or knowledge, and this all results into new innovation and an increase in growth and development. The comparison between capital, labour and knowledge, however, clearly shows that knowledge displays certain features of a traditional factor. Similarly to capital, knowledge can be accumulated. Knowledge, same as capital, has an impact upon labour. It affects the labour force through education and training. Š16Ë In certain economic studies and analyses, and due to an increasingly important role of knowledge in achieving economic growth and development, a classification of capital was made into natural, physical and human. There is a connection among these three types of capi tal. All three have a direct or indirect impacts and improve the productivity in expanding the production of goods and services in an economy, and also ensure the development and growth of the social wealth. The impact of all the three types of capital upon the economic process and social wealth is illustrated in Figure 1. Figure 1. The impact of physical, natural and human capital upon economic process and social wealth Source: Barbier B. Edward, The Role of Natural Resources in Economic Development, University of Wyoming, 2003, p. 255. Physical capital (Kp) includes machinery, equipment, premises, tools and other investment goods. It is used in the production process and affects both production and the environment. It has a crucial impact upon the growth of social wealth. Human capital (Kh) includes knowledge, skills, competences, and abilities of labour force necessary in the production process. It ensures research and development that leads to technical and technological innovation and larger social wealth. Natural capital (Kn) or natural resources are materials and energy consumptive inputs used in production. Appropriately oriented, natural capital supports the population to employ ecology to contribute to the health of people and their safe life, thus increasing social wealth. Š1Ë It is necessary that an appropriate social policy should be pursued and that a socio-political consensus should be established in order that all three types of capital be used to the extent to which they increase the production and the social wealth, and that simultaneously the capital be available to the future generations in the time to come. Forecasting, evaluation and the selection of a possible course in achieving this goal is neither an easy nor a simple process. Without adequate economic policies, a development strategy, and an active role of the state, chances are small to answer to an increasing economic and technological complexity of increasing social wealth. Tt is necessary that economic policies be improved and business activities and profitable processes be maintained. It is also necessary that employment should be increased, but also the level of knowledge, to stimulate the development of new products and processes and hence improve productivity, production and the amount of social wealth. Š13Ë The developed economies based their growth and development on knowledge that generates innovation. Innovation is achieved by a more effective protection of intellectual rights, by the development of the financial sector, by a higher quality and a higher level of education and by a macroeconomic stability. Š18, p.52Ë The European Union, the OECD, the EBRD and other international institutions define standards to achieve sustainable economic growth, increase employment, improve the standard of living, maintain financial stability and provide aid for the developing countries. Improving and creation of new knowledge and its transfer and dissemination to new generations through education is closely connected with the development of higher education, as well as with the research and development that increasingly become a dominant factor in the economic development and in creating a knowledge-based economy. This economy is based on high quality intellectual resources and their profitability. In addition to generating innovation, knowledge can direct and define the orientation and flow of economic development. Similarly, knowledge and technological progress are linked to the reduction of budgetary deficits and the deregulation of policies, especially in the financial sector, in airline transportation and the electrical power supply sectors. Not all economies, however, have equal amount of resorces available. It is because of the differences in education, i.e., knowledge, competencies and skills of the country population that it is assumed that there is a development gap among countries. Hence the implementation of knowledge, conditioned by technological change and innovation becomes an important development factor in each economy, which is the goal of many countries worldwide. International institutions such as OECD, the World Bank, the United Nations and the European Union have developed their own methodologies and indicators to mark the extent to which economies have developed. They are oriented towards humane and social development indicators, towards measuring the development based on systemic, strategic and planned processes, on information-communication technologies and certain knowledge indices that have their roots in the indices of education, innovation, and the ICT and economic-institutional regime. Š14, p.6Ë There also are other indicators that show the development of the knowledge-based economy. These are: investments into research and development, investments into the higher education system, i.e., capital (researchers and doctorands), capacities and quality of the education system (costs of education and life-long learning), e-government (purchasing new equipment and modernization of public services), work productivity, implementation of information-communication technologies, etc. Š2Ë Investments into education can contribute to achieving a sustainable and long-term economic growth and development, due to the development of human capital employed in creating, implementation and adjustment of technologies. It is in this way that knowledge can catch up with the new technologies developed and consequently with developed economies. The support to knowledge is ensured by information-communication technologies. 3. European information society and knowledge-based economy The information communication technologies play an important role in building the knowledge-based economy and the information society. The information society is a synonym to information-communication technologies (ICT). A result of a fast development, implementation and impact upon all the spheres of society and economy in the course of 1990s, the idea for creating an information society emerged. This period is caracterised by an electronic exchange of information, convergence towards digital technologies, an exponential growth of the Internet and opening of the telecommunication market. For an information society and a knowledge-based economy to be created it required a further ICT development and implementation. In order that the production and implementation of new, knowledgebased technologies should be increased, it is important that structural changes be conducted, and this is accomplished through the following structural factors. Š5Ë 1) Flexibility of goods market is necessary, including the market regulation, low costs of market entrance and exit, a competitive environment that will ensure the necessary incentives to companies to invest into and implement innovative technologies and increase innovation. 2) Relevant is the implementation of efficient innovation systems meant to reduce the gap between the EU and the USA. The American innovation system is efficient in linking various participants, is of good quality and invests into knowledge sectors. This system offers direct resources to the sectors of new and high technologies. On the microeconomic level, the main component of an efficient innovation system is the entrepreneur culture. In order that a company be innovative, it has to recognize the opportunities and chances on the market, respond in an innovative manner and possess a large knowledge base. A flexible financial market generates venture capital to finance the innovation of the company. 3) Labour market flexibility is important because of the presence of technological change. An inadequate employment policy can have a negative impact upon the company reorganization, upon new technologies implementation, as well as upon the skilled labour force migrations. The possibility of migration between different jobs and a flexible labour market include life-long learning and ensure permanent improvement and education. 4) The ICT skills are essential for the ICT sector as well as all other sectors that implement new technologies. The ICT sector and all the companies that implement ICT have a highly trained labour force (scientists and engineers). There is an increasing percentage of labour force Š11Ë that command an equally increasing knowledge and skills required that the ICT should be implemented correctly. Education and various forms of training are essential for the ICT implementation. In addition to these factors, the successful implementation of ICT depends on the factors related to both the ICT sector and public policies. These are: 1) The ICT sector that has an impact upon the productivity growth via technological change. The sector generates innovation and invests into knowledge, research and development. Investments into research and developement are larger here than in any other sector. In the EU they amount to 25% of the total research and development of the entire economy; 2) Common market allows for the economy of scope and a larger market for ICT diffusion to develop. The legal framework and the regulations of the electronic exchange of information, i.e., communication, is important for the creation of the European unified ICT market. The lack of appropriate regimes, however, may end in the market fragmentation, especially in the fields of intellectual rights protection, of standardization and of security; 3) The Small and Medium-sized Enterprise sector makes a majority of the European economy. These firms are a major source of new jobs, entrepreneurship and innovation, however, they lag in the ICT implementation. An integrated e-Business policy should stimulate firms to implement ICT to a larger extent; 4) ICT implementation by the government and the availability of modern on-line services can increase the ICT implementation and productivity. In the 2000s, the EU encountered a problem of economic growth and unemployment. The solution was to create conditions for a dynamic growth, one that was to increase employment, offer an opportunity for the progress of all members of the society and increase the standard of living, and these should be achieved by the adoption of the Lisbon Strategy, meant to build the EU into an information society and a knowledge-based society. 4. Lisbon strategy Modern strategies are becoming the basis of the socalled new economy. The idea of this economy is that developed economies should achieve high economic growth rates, reducing inflation and unemployment along the way. A fast development of the Internet made people neglect the ICT for a while. New technologies, however, continue to contribute to the economy development. The ICT are considered to be the general purpose technologies. They are present in economic processes and affect economic efficiency in various ways and in different sectors. A gradual adoption and implementation of structural changes helps achieve certain economic performance. In order that it should improve its economic performance and reduce a gap between the European and the American economies, the european Union creates a so-called electronic Europe and implements the Lisbon Strategy. The implementation of economic reforms improves the competitiveness of European economies. The increase in employment is the best way for the European Union to increase productivity, achieve economic growth, increase the human potential and create more jobs. Economic reforms include the implementation of various measures, from the market liberalization, to the promotion and development of the small and mediumsized enterprise sector, entrepreneurship and innovation, to the reduction in legal regulations that enhance the flow of economic activities. In order to implement economic reforms and become the worlds most competitive economy as well as a knowledge-based economy by 2010, the European Union adopts the so-called Lisbon Strategy (also known in literature as the Lisbon Agenda or the Lisbon Proposition) in 2000. Since 2000, the EU achieved a considerable progress in implementing economic reforms. In the five-year period markets have been opened for telecommunications, network industries and financial services, over a million new jobs were created and various opportunities for households all over Europe emerged. Š4Ë There was a need, however, that this process be accellerated in order that the goals set should be achieved by 2010. Hence the Lisbon Strategy was amended and improved in March 2005. The report on the goals accomplished and the results of the Lisbon Strategy implementation was prepared under the leadership of Wim Koka, in 2005, therefore it was named Kokas report. The report showed that the set goals were not achieved to the extent they were expected and planned to be achieved. The critics stressed that goals were defined too broadly, that programmes were too voluminous, that coordination was insufficient and that the priorities of the development of some EU countries were inadequate, especially from the point of view of the public debt and the GDP. Besides, the allocation of responsibility among national economies and European institutions was not clearly defined. Different levels of reform implementation were achieved simultaneously among the EU countries. Nevertheless, the authors of the Report pleaded for the pursuing of the same set goals. The reforms meant to be accomplished remained the same: a relatively flexible labour market, i.e., improvement and recruitment of highly skilled staff in order that a higher employment rate should be achieved; in this way a stronger competition and a regulation reform will be achieved; creating favourable conditions of business climate and firms profitability in business operations as well as innovation implementation; creating a relatively dynamic and competitive unified market, characterised by a liberalization of services and a new strategic approach that means the implementation of the ruling regulations, a proactive approach to competitive policy, the introduction of competition in public tenders and the reforms in state aid; the liberalization of foreign trade and ensuring economic conditions for sustainable development, as well as environmental protection, more precisely, the promotion of eco-efficient innovation and an economic and social progress in environmental protection. The strategy has a complex structure, since it includes varied and numerous goals and activities, as well as an ambiguous allocation of responsibilities and tasks, especially between the EU and its member-states. The goal is to understand and overcome the weaknesses in the reform implementation, as well as to reduce the gap between the American and the European, but also an increasingly strong Asian economies by achieving the set goals. The major goal of a revised Lisbon Strategy is sustainable development, economic growth and an increase in the employment rate. This is possible to achieve only on condition the EU become an attractive area for investments and thus a higher level of labour productivity be ensured, on condition knowledge and innovation be ensured for the growth and a larger number of jobs requiring highly skilled staff be created, from the point of view of new technologies implementation. Š8Ë Basic to the Lisbon Strategy is the global economy whose goal is a radical transformation. This includes the change in technology, in production and in trade. A faster flow of information and a reduction of transportation costs have broken traditional geographical barriers to performing economic activities. The boundaries indicating which goods could be traded and which could not have gradually disappeared and the global market includes an ever increasing number of different and new goods and services. An increasing number of countries open their economies, and market liberalization allows for the development of global trade and investment. It is in this way that a larger number of opportunities for a faster integration of national economies into the global economy are created. The increase in the global output has become a dominant strategy of the modern world. An important share in this output belongs to Asian countries. China and India are expected to achieve about 25% of the world output by 2015. Creating a favourable business climate and low costs of production orient foreign direct investments towards Asian countries. With the development of the ICT the production becomes specialized and decentralized by countries, by continents, as it tries to find the most convenient site and profitability for business operations. The global competition and the speed of technological change intensify the need for increased innovation. Countries that implement high technologies to produce added value make attractive fields for foreign investments. The need for higher education and for the skilled labour force is increasingly present throughout the world. The promotion of energy efficiency helps reduce costs and protect environment. These are only some problems the European economy will have to cope with and maintain the traditional leading position, that is, to have a major share on the global market and in the global economy. These are simultaneously the basic reasons for adopting the Lisbon Strategy. The EU economy should achieve a higher flexibility of the goods, labour and capital markets in order that business activities should be adjusted to economic changes, and that new opportunities should be taken and thus the advantage be achieved in comparison with other economies, and especially in comparison with the USA and the global environment. The structural changes promoting flexibility make the basis of success in the modern economy. Since 2000 until the present day, the EU has been changing. Innitially an organization of 15 member countries, the EU has become a Union of 27 member countries. The Euro has become one of the leading currencies in the world. The number of member countries in the Eurozone has increased from 12 (in 1999) to 16 (in 2010). Nevertheless, the economic crisis affected the implementation of the Lisbom Strategy. The GDP in the EU fell by 4% in 2009, while the unemployment rate amounted to approximately 10%. The fiscal budget deficit amounted to about 7% of GDP, and in two last years the debt level rose by 20%. In the last decade the European economy was characterised by a cyclical movement, its success and its falls. After the fall in the economic activities in the 2000-2003 period, the European economy in the following five years has been caracterised by the price stability, a steady economic growth and creation of new jobs. Since 2005 until the economic crisis these performances increased. The average GDP growth amounted to 3% (2006-2007), to fall to -4%, due to the 2009 economic crisis. The situation with unemployment rate was not much different. In 2007, the unemployment rate was 7%; in 2010 it amounted to 10%. The crisis had a negative impact upon fiscal policy, that is, upon public finances. The average fiscal deficit amounted to about 7% of GDP, while the debt level approximated 80% of GDP. Regardless of these unfavourable changes, the Lisbon Strategy has had a positive impact upon the EU development. The basic goals, the employment rate of 70% and a 3% GDP expenditure on research and development have not been fully achieved. In 2000, the employment rate was 62%, in 2008, it rose to 66%, while in 2009 it fell below 65%, due to the economic crisis. The employment growth is important because it increases the economic growth, ensures a long-term fiscal stability and safekeeps the wealth of the citizens. Graph 1 presents the employment rate in the EU and the USA in the 2000-2009 period. The employment rate is still higher in the USA than in the EU. In 2008, the employment rate in the EU-15 amounted to 67.3%, in EU-25 it amounted to 66.3%, in EU-27 it was 65.9%, while in the U.S.A. it amounted to 70.9%. Š3Ë Graph 1. Employment rate in EU and USA, 2008-2009 period Source: Eurostat Through a historical genesis, the economic analysis shows that in the first three decades after the Second World War the living standard in Europe increased, however the gap between the living standard in the USA and that in Europe always existed. The living standard in the USA was higher. In the 1980s this gap decreased, to increase again in 1990s. In 2005 the gap in the living standards between the USA and the EU15 amounted to 30%, whereas it was 35% for the EU25. The USA has always had a higher economic growth rate, except in late 1990s and at the beginning of 2007, when the economic crisis in the American economy started. The trends in economic growth rates of the European and the USA economies are presented in Graph 2. Graph 2. Growth rate of real GDPs of EU and USA, year per year percentage change, 2000-2011 period Source: Eurostat In order that the strategic goal of the EU, the rise in the economic growth and employment, be achieved, it is necessary that labour productivity be higher. The productivity differs from country to country, and on the EU level it is smaller than in the USA. It is only Luxembourgh that has a higher labour productivity than the USA. The trends in labour productivity in the EU and the USA are presented in Graph 3. Graph 3. Labour productivity per working hour in EU and USA, GDP (PPP) EU-15=100, 2000-2009 period. Source: Eurostat The attempts to achieve the goals set in the strategy were hindered by the economic crisis, but also by an insufficient political will to implement the strategy fully. The consequences of the economic crisis are a relatively high unemployment rate, the decline in economic growth and an in the public debt. Nevertheless, the EU succeeded in stabilizing its financial system and adopting a recovery plan by increasing increase aggregate demand and bringing back the trust in this system. These were accomplished by fiscal and monetary stimulative policies, that is, by public investments into infrastructure, innovation, new skills and knowledge of the labour force and energy efficiency. The economic conditions for work are gradually improving, however this recovery is rather slow. Fast and frequent changes are evident in the world economy, therefore the European economy should primarily deal with globalization, scarce resources and climate changes. The EU will be able to adjust to change and progress further if all the member countries act in unision, in a coordinated manner, together. It is for this reason that the European Commission adopted a new strategy the Europe 2020 Strategy in March 2010, its goal being that the European economy should exit the economic crisis and prepare the EU for the decades to come. Besides, this is a continuation of the Lisbon Strategy implementation. According to this strategy, the EU should exit the crisis stronger and achieve a smart, sustainable and inclusive growth and an economy that will increase the employment level, the productivity and the social cohesion. To achieve these goals requires a powerful and successful state management. The Europe 2020 Strategy set three priorities: 1) smart growth, that is, the knowledge- and innovationbased development of economy; within the smart growth there are three initiatives: Innovation Union (creating conditions for financing research and development), youth on the move (improving the performance of the education system and raising the international reputation of the European higher education), a digital agenda for Europe (a very fast Internet and the benefits of digital unified market for households and companies); 2) sustainable growth, i.e., promoting a higher resource efficiency, a greener and a more competitive economy; this growth is based on two initiatives: efficient resources in Europe (refers to climate, energy and mobility, to promoting renewable resources and energy efficiency) and the industrial policy for the globalization era (competitiveness and improvement of business climate, especially in case of medium-sized and small enterprises); 3) inclusive growth, full employment in economy that has an impact upon the social and the territorial cohesion. There are two initiatives to achieve this type of growth: Agenda for new skills and jobs (modernization of labour market due to the mobility of labour and skill development) and the European platform against poverty (social and territorial cohesion). Š17Ë The New Europe 2020 Strategy promoted the introduction of the so-called scheme of state monitoring and linking the fiscal stabilization programme with larger investments into science and education. The basic EU 2020 goals are ambitious, but achievable. It is the proposition of the European Union that there should be five goals that would also be the basic national goals: employment, research and innovation, climate changes and energy, education and fighting poverty. The EU has set concrete goals and responsibilities, such as: raising the employment rate of the population aged 20-64 from the present 69% to 75% and an increase in investments into research and development from GDP 1.9% to GDP 3%. One goal is also to reduce energy consumption by 20%. The emission of carbon-dioxide and other harmful gases is planned to be reduced by 20% as compared to 1990, and the share of renewable resource-produced energy should amount to plus 20% in the total consumption. Much attention in the new strategy is paid to education and to applied science; plans are that the number of university graduate citizens should increase from todays 30% to 40%. One goal is also to reduce poverty, from 80 million to 60 million people. Due to the goals defined by the new strategy, its creators named it the plan for a smart, green and inclusive growth. In order that this target should be achieved, the Europe 2020 Report and assessments and the Stability and Growth Pact will be conducted simultaneously, in order that resources and goals be coordinated. Š6Ë 5. Conclusion The knowledge-based economy and the informantion society are terms used today to describe the presentday economic society. The knowledge-based economy is increasingly viewed as a continual process of economic transformation towards knowledge-based activities and sectors, rather than towards radical and drastic changes. The developed countries have already based their economies on knowledge; they already allocate largest funds to science and research. One way to increase their income is the building of a knowledgebased economy. This opportunity can be taken by those countries in which productivity and growth do not largely depend on natural resources; the countries that possess a certain quality human capital, invest and create new knowledge and ideas to improve the factors of production. Knowledge and technological progress have become the leading driver of economic growth and development. Š12, p.202Ë New growth theories are associated to labour productivity achieved by innovation, which are in turn the result of knowledge. Various economic statistics, research and analyses have analysed and proven the impact of the knowledgebased economy upon the economic performance and the long-term change in the economy structure. Similarly, the knowledge-based economy ensures an impressive economic growth, an increase in productivity, profitability and investment rate, while at the same time reducing inflation and unemployment rate. It is most strongly associated with the impact of technological innovation that contributed to the price reduction and an increase in the ICT product efficiency. The globalization effects and a fiercer international competiotion and competitiveness on the labour market resulted in cost reductions and an increase in efficiency. The European Union is making efforts to build a knowledge-based economy. The idea is that this concept of development be implemented in all the EU countries as well as in the countries that wish to join the Union. The building of such an economy is meant to increase economic growth and the development of European economy and thus reduce the gap between the development levels of the EU and the USA. By the implementation of the Lisbon Strategy directives, by building a knowledge-based economy and an information society, the European economy has increased employment and economic growth. The economic crisis, however, hindered the achievement of higher economic performance in the world economy. The EU, however, has adopted a new plan to overcome the economic crisis and to further build a knowledge-based economy that will help achieve a higher level of economic development of the European economy. REFERENCE Š1Ë Barbier B. Edward, The Role of Natural Resources in Economic Development, University of Wyoming, 2003, http://homepage.univie.ac.at/adusei.jumah/natural_r esources.pdf Š2Ë Cook P., Leydesdorff L., Regional Development in the Knowledge-Based Economy: The Construction of Advantage, Journal of Technology Transfer, 31: 5-15, 2006. Š3Ë Eurostat Š4Ë Growth and Opportunity Prioritising Economic Reform in Europe, HM TREASURY, February 2005, http://www.berr.gov.uk/files/file25094.pdf Š5Ë i2010 High Level Group, The Economic Impact of ICT: Evidence and Questions, Information Space, Innovation & Investment in R&D, Inclusion, 20 April 2006, http://ec.europa.eu/information_society/eeurope/i2010/docs/high_level_group/i2010_benc hmarking_framework.pdf Š6Ë Jednak J., Ekonomija Evropske unije, BPŠ VŠSS, Beograd, 2010. Š7Ë Jednak S., Kragulj D., Jednak D., Znanje kao fak tor privrednog razvoja, SYMORG 2010, 2010. Š8Ë Kesner-Škreb Marina, Lisabonska strategija, Institut za javne finansije, Zagreb, Pojmovnik, UDK 331.5:364.23(4-67EU) Š9Ë Kragulj D., Ekonomija osnovi mikroekonomske i makroekonomske analize, Beograd, 2010. Š10Ë Lavrnchenko O., Bonchuk T., Knowledge and Information as a Basis of Societys Economic Development, http://fse.tibiscus.ro/anale/Lucrari2009/086.%20La vrinchenko,%20Bonchuk.pdf Š11Ë OECD, Working Party on the Information Economy: New Perspectives on ICT Skills and Employment, 2004. Summary, http://www.fes.hr/Ebooks/pdf/Economic%20Development/10.pdf Š14Ë Rahimić Z., Kožo A., Building and Development of the Knowledge Based Economy in Bosnia and Herzegovina, 2009, http://ideas.repec.org/a/osi/journl/v5y2009p111122.html Š15Ë Republički zavod za razvoj Srbije, Strategije, Š12Ë Papanek G., Economic Growth versus Economic www.razvoj.gov.rs Development, Periodica Polythecnikca Ser.Soc.Man. SCI, Vol.10, No.2, pp. 201-213, 2002., http://www.pp.bme.hu/so/2002_2/pdf/so2002_2_02. pdf Š13Ë Plostajner Z., Briski A., Economic Development Š16Ë Tang S., Knowledge as Production Factor: Toward a Unified Theory Of Economic Growth, http://iaps.cass.cn/UploadFile/2005102203439560.p df Š17Ë Towards a Green and Innovative Economy, 2009. http://ec.europa.eu/archives/growthandjobs_2009 on the Local and Regional Level: Workshop Š18Ë Transition Report 2008, EBRD. Project Management and the Creation of Economic Policy Guidelines at the Sub-national Level UDC: 005.8 ; 338.24 Walter Scherrer University of Salzburg, Department of Economics and Social Science walter.scherrer¿sbg.ac.at XII International Symposium SymOrg 2010, 09. 12, june 2010, Zlatibor, Serbia Economic policy at the sub-national or regional level has increasingly become relevant and challenging with intensified economic globalization and requires the development of economic policy concepts. This paper discusses how methods of project management can be applied to the process of creating guidelines for regional economic policy authorities. It starts with a discussion of specific features and challenges of project management in the public sector. It is concluded that projects in the public sector frequently are more difficult than those in the private sector. Then typical features of a project which is aimed at creating regional economic policy guidelines (CEPG-projects) are highlighted. Major characteristics of the most important project deliverable a coherent medium term concept for regional economic policy makers are discussed. The analysis of the typology of such projects suggests that CEPG-projects tend to start as pioneer projects and then turn into acceptance projects. From this analysis of project types and a brief analysis of three distinct levels of project management (functional, methodological, and social level) skill requirements of project managers and the public administrations potential for drawing on external expertise are derived. Finally the relation between focusing the projects scope on the one hand and achieving legitimation and acceptance by the stakeholders and the wider public on the other hand is discussed. A trade-off between these two project goals arises as both are functions of the number of stakeholders. 1. Introduction Project management has become a standard tool for planning, coordinating and controlling diverse and complex activities in the private business sector. Meanwhile its use is commonplace in many areas in the public sector, too. Many endeavours of the public sector are organized as projects, and thus the interest for specific features of project management in the public sector has increased (see e.g. Wirick Š8Ë). This paper deals with a specific type of public sector projects which is at the interface between the public and the private sector: the creation of a strategic framework (guidelines) for regional economic policy authorities. The need for such a coherent framework for focusing regional economic policy in a medium term perspective has increased as the context for economic policy making at the sub-national level (i.e. regional level) has become more complex. The intensity of interaction and competition among regions has increased both at the international and interregional levels, and the scope of economic policies at the sub-national level has been enlarged as international economic and political integration has shifted competences and power between levels of government. The scope of regional economic policies has also been widened as participation in many European Union programmes needs most of the project development and policy planning to be done at the sub-national levels. Politics has been challenged by the necessity to design coherent and sophisticated strategies for regional economic development. The design process of guidelines for economic policy at the regional level is considered a project because it meets the criteria both according to the Project Management Institutes Guide to the Project Management Body of Knowledge (PMBOK; PMI Š5Ë) and to the German industrial norm DIN 69901. The design process is a temporary endeavour as it has a start and an end, it needs resources and some amount of preparation and planning, and the processs goal is to create a unique deliverable i.e. the economic policy guidelines. Thus methods of project management can be applied to the process of creating such guidelines. The paper analyses the endeavour Creating Economic Policy Guidelines at the sub-national level (CEPGproject) from a project management perspective. Section 2 discusses challenges and problems of project management which are specific in public sector project in general. Section 3 highlights major features of a CEPG-project being a specific public sector project. Topics of analysis include project deliverables, possible project types, specific issues concerning the functional, methodological, and social levels of project management, and problems of dealing with big numbers of stakeholders and aggregating results. Matters concerning project organisation, timing of the project, and the roles of public employees and other experts in such a project have been discussed elsewhere (Scherrer Š7Ë). The paper draws on experience with CEPG-projects which have taken place in Austrian regions since the late 1990s. 2. Specific features of project management in the public sector 2.1. Defining the Public Interest and Measuring Project Success A marked difference to private business sector projects is the difficulty to define the public interest. While in business projects a companys interest usually can be defined easily in public sector projects major problems of revealing preferences and preference aggregation arise. So it is not quite clear which groups of a regions society or economy ought to be targeted by economic policy in order to serve the public interest best. A specific feature of public sector projects is that like a CEPG-project they may reach far into the future and therefore needs of stakeholders ought to be served who are not yet at the table and whose interests might be difficult to identify (Wirick Š8Ë). This issue has been reflected by the change of goals of regional economic policy in the CEPG-projects in the province of Salzburg during the past fifteen years. In the first edition of this project in 1997 the guidelines aimed at two goals of economic policy: gdp growth and jobs. In the next round in 2003 economic growth and jobs were still top-level goals, but the reduction of regional disparities was added as another goal of medium term economic policy. This change occurred although no major change in regional economic disparities had been observed in the meantime. In the project cycle which started in 2009/10 these three goals will very likely be complemented by ecological sustainability. While this topic was considered exogenous in former project cycles ecology-economy links will get more attention and thus will turn from being part of the framework conditions to a core object of economic policy. But even if we assume that like in the case of the CEPG-project it is possible to define the public interest properly it is often difficult to measure the achievement of this public sector project properly. While in a private business environment a single and simple indicator of performance, like return on investment, can be used to measure performance, publicsector agencies often lack such simple measures. In the case of the CEPG-project at the top level of goals aggregate indicators like the gross domestic product per capita, the growth rate of real gdp, employment growth or unemployment rates have been used. Measurement of these indicators is simple, but targets expressed in average values hide differences across sectors, firm size, gender, age groups and other structural characteristics which might be important. Targets and measures ought to be diversified carefully because there is a risk of overloading medium term guidelines with a vast amount of goals, strategies and instruments. Guidelines thus would become less meaningful. A further problem with the CEPG-project is the difficulty to attribute actual economic performance to the strategies suggested by the project. A regions economic performance depends on a variety of influencing factors which are not under the control of the regions authorities. Interregional and international interdependencies of the business cycle, constitutional and other legal constraints, and the activities of regulatory authorities at the national and supra-national levels restrict a regions potential to design and implement independent policies.Therefore it is suggested to measure performance and to define targets in a CEPG-project not primarily in absolute numbers but in relation to other regions within the same or a similar relevant legal and political framework 2.2. Five Challenges for Project Management in the Public Sector according to PMI The Project Management Institute, a leading nonprofit organisation which has been propagating project management and setting standards in project management identified five challenges and trends which affect how project management works in the public sector (PMI Š6Ë). These challenges are: managing multiple stakeholders, adapting to a changing political landscape, understanding local politics, dealing with public scrutiny, and dealing with personnel constraints In public sector projects usually several stakeholders from other agencies and outside the public sector with varied interests are involved. The impact of these projects on this multitude of programs and providers has to be considered as the projects success requires their cooperation and performance. This, in turn, increases the number of stakeholders in this type of projects. The project managers thus operate in an environment of conflicting goals and outcomes, and because they may lack governance in their projects, they need to use a lot of negotiation, conflict resolution, communication, and leadership skills. The inclusion and management of a multitude of stakeholders has turned out to be a major challenge in CEPG-projects (see Scherrer Š7Ë) and will therefore be dealt with in more detail in section 3. The need to adapt to a changing political landscape may best be exemplified by the fact that project continuity may not we warranted due to political cycles and elections which entail the change of political leaders and perhaps even the first tier of administrative leadership. With new people at the top level new ideas for new projects enter the administration while old projects are prone to be stopped or started over again. A CEPG-project should be initiated soon enough so that it can be finished well before the next election day in order to save project results from the rhetoric of election campaigns. Therefore proper timing has turned out to be another crucial issue in CEPG-projects (more details see in Scherrer Š7Ë). Understanding local politics is important because directives, policies, procedures and statutes may affect projects. In the public sector projects are performed in an environment that includes political adversaries; often they have to placate political interests. This applies to CEPG-projects because they affect a variety of policies which are designed and implemented by other departments of the regional administration, by other government agencies, or at other levels of government (e.g. the central state). Public sector projects are usually confronted with a much more intensive public scrutiny than private sector projects because they affect many persons, firms, and organisations outside the public sector. Failures get a lot of attention because they could be considered to cause an improper use of public funds and because they could harm many persons. In public sector projects it is much less possible to conceal information than in private sector projects; they are performed under constraints imposed by administrative rules, policies, and processes that can delay projects and consume project resources. The project manager in the public sector may operate under a variety of sometimes overlapping oversight structures, like the oversight of an elected executive, oversight agencies, legislative bodies and their own oversight agencies, and elected oversight officials, such as state auditors and treasurers. As a result of this overlapping oversight, public-sector projects may be required to dedicate substantial resources to ensuring that constraints are not violated and that oversight agencies are placated (Wirick Š8Ë, p.3). And, last but not least, projects in the public sector frequently operate under close media scrutiny. Finally, dealing with a pay cut (PMI Š6Ë) or other personnel constraints are specific features of public sector projects. If highly skilled jobs in the public sector are paid lower than in the private sector this might lead to higher turnover rates of skilled project managers. Budget constraints, procurement regulations, civil-service protections and specific hiring systems may cause that public sector projects have to be per formed with existing staff resources more often than private-sector projects. Further, the culture in public administrations is likely to be different from firms in the private sector which are usually better used to directed action and project success (Wirick Š8Ë). 2.3. Summing up: Public-sector projects can be more difficult than private-sector projects The public sector is different compared to the private sector, and thus public sector projects are characterized by specific features and problems which can make them more difficult than many projects in the private sector. In the public sector projects are often operated in organizations and project environments in which it is difficult to measure project outcome. In many public sector projects the outcome is difficult to determine in advance (a CEPG-project is a good example!) which makes this type of projects more difficult than those for which the outcome can be defined at the beginning of the project because more interaction among stakeholders is required during the process. 3. Features of a cepg-project 3.1. Project deliverables The projects purpose is to develop a coherent concept for focusing regional economic policy strategies in a medium term perspective. The concept which will be the core deliverable of the project ought to contain an analytical basis from which regional economic policy guidelines are to be derived. This analytical basis is likely to contain an analysis of economic structure and performance of the region, an analysis of the economic, social and institutional environment which forms the regions framework conditions for economic policy, and an analysis of socio-economic trends which are likely to affect the regions future economic development. Forecasts and scenarios might also be part of the analytical base. A first policy-oriented part of the concept is the definition of medium term goals of economic policy and of operational indicators to measure the achievements of policy. This is not a straightforward task because of problems to develop operational indicators which should measure the achievements of the policies and because of the difficulty of attributing economic outcomes to economic policy actions (see section 2.1.). The politicians and other stakeholders attitudes toward goals of economic policy might change over time, too. E.g, in the economic policy guidelines of the Province of Salzburg in the first project cycle which started in 1997 economic growth and job creation were the only two top-priority goals while in 2003 the reduction of regional disparities was added as a third goal (although regional disparities had not increased in the meantime). In the recent third round of the project cycle (2010) sustainability ecological sustainability in particular will very likely be added as a fourth goal. The second policy-oriented part of the concept is the identification of fields of economic policy guidelines for developing medium term strategies. Medium term means more that guidelines should be developed for more than one election period and that the strategy period reaches beyond the usual short-term political planning horizon. While divergent interests of project stakeholders may emerge already at the stage of defining top-priority goals they become most virulent when the areas of policy intervention are defined and concrete strategies are developed. As a CEPG-project is an instrument of political marketing another group of project deliverables could be the presentation of the concept to regional government, regional parliament, various stakeholder groups of economic policy, and to the wider public. 3.2. Project type Project characteristics and challenges for project management differ with regard to project content and type. Project types can be distinguished according to various dimensions, e.g. according to: the project initiation and project operation: inter nal vs. external projects; the size of the project in terms of resources and time required for the project; the projects degree of uniqueness: pioneer proj ects vs. routine projects; the nature of the endeavour: the project task may be well defined in advance with a limited amount of possible modes of delivery (closed task) vs. projects which are characterised by a variety of possible modes of delivery (open task); and the degree of social complexity of the project: low complexity projects due to a small number of stakeholders involved with only moderate differences of interests and approaches to problem solving, simple modes of causation and thus relatively low risk to accomplish project goals vs. highly complex projects requiring interdisciplinary cooperation, being politically controversial, and involving many stakeholders with diverging interests. A CEPG-project usually is initiated internally by the politician(s) in charge of regional economic policy, and the administrative department plays a key role in the project. Thus CEPG-projects tend to be basically internal projects although external expertise (both or ganisational and functional) may be purchased from outside. The project size usually will be a medium one: in none of the CEPG-projects in Austrian regions in which the author has been involved the average number of staff devoted to the project in terms of fulltime-equivalents during the whole process exceeded five persons. The project duration was between nine and eighteen months. Combining the project dimensions nature of the endeavour and degree of social complexity in a matrix (see diagram 1) yields interesting insights particularly for CEPG-projects. Projects in the lower left quadrant (standard projects) can be operated easily due to simple project characteristics; because of its repetitive nature organisations are already experienced with handling this kind of projects. The deliverable of such projects is unique but the mode of delivering is standardised. Serious CEPG-projects will not be found in this quadrant. Potential projects are characterised by little social complexity. But because the mode of delivery and the contents of the outcome are largely undetermined in these projects an the scope (i.e. the potential) of possible solutions is broad. Diagram 1: Project types; Source Kuster Š2Ë, translated and adjusted by W.S. Pioneer projects entail fundamental consequences for the organisation undertaking the project. They involve many stakeholders and are characterised by a high degree of uniqueness and risk. Finally, acceptance projects are endeavours with a well defined task. They are complex projects due to a big number of stakeholders with diverging interests, but they are not unique (any more). As the organisation already has some experience in handling this type of project methods of project management can be standardised. The major task of such projects is to gain or maintain stakeholders acceptance of the project outcome. What project type will a CEPG-project be? When a regional administration does such a project for the first time then it will be characterized by a high degree of openness concerning the mode of delivery and the nature of the project outcome. The projects degree of social complexity depends on the number of stakeholders involved. The project may start as an internal project within the administration in order to analyse the feasibility and different modes of creating economic policy guidelines at the regional level. As it will turn out sooner or later that guidelines are likely to have an actual impact on economic policy and the regional economy only if the regions key economic policy relevant stakeholders get involved into the process the first CEPG-project undertaken by a regional government will tend to be a pioneer project. If the project is repeated it will become easier to define the project task and the expected outcome, and the project management can rely on methods which have proved to be already successful before. So a CEPG-project might start in a pre-project phase as a potential project but will then quickly change to a pioneer project. Finally it is likely to change to an acceptance project as it runs through several project cycles. This typology of projects is helpful for the choice of project organisation, for the decision on how to deal with the project environment, and for defining the requirements concerning networking and the skills of the project manager. In the lower two quadrants (particularly in standard projects) no big project organisation is required and the organisational culture does not differ very much from the line-world of an organisation. In acceptance and pioneer projects the cultural difference to and the potential for interferences with the line organisation are more significant. In such projects which are typical forms of CEPGprojects social competences and networking abilities are key skill requirements for project management to be successful. 3.3. Levels of project management Project management deals with the organized planning and implementation of complex activities in a project. It has to cope with the challenges of defining the proper scope of the project, dealing with time constraints, and dealing with cost constraints the triangle of objectives and trade-offs between cost, performance and time (Lock Š3Ë). A major task of project management is to strike a balance between these interrelated constraints. Tackling these challenges needs three levels of project management (comp. Kuster Š2Ë) from which again skill requirements of the project manager of a CEPG-project and the potential to outsource specific tasks to external firms (consultants, experts) can be derived. First, there is a functional level of project management which aims at planning of goals and structuring the project. Here the major challenge for the project manager of a CEPG-project is having a sound knowledge of the regions economy and a basic knowledge of economic theory and policy. The project manager has a strong influence at the functional level because he is in charge of formulating intermediate reports and drafting the final report the deliverable of the whole project. Therefore administrations are well advised to build up competences in economic policy as these are at the core of the knowledge base required for developing and implementing economic policy guidelines and strategies. At the same time public administrations ought to draw on external expertise, too, in order confront regional economic policy stakeholders with an unbiased view of the regions economic situation and development. Second, there is a methodological level of project management which is concerned with planning resource use, capacities, cost, time, and liquidity. For these purposes the standard tools of project management like structuring techniques, bar plans, netplan techniques like the critical path method, and other decision and planning techniques are used. As long as a CEPG-project is a potential project or a pioneer project methodological expertise may be purchased in the market. When a project is set to take place repeatedly and it thus gets the character of an acceptance project (or even a standard project) the time has come to develop this type of expertise within the administration in order to reduce the dependency from external knowledge. Third, there is a relational or social level of project management. The informal aspects of project planning and management, which focus on problem solving and conflict management, are important determinants of the success of projects in the public sector (Joyce Š1Ë, p. 85). It is relevant how the persons involved in the project communicate and deal with each other in a team, how they can develop creativity, how they present their ideas and results, how opposition and contradictions are dealt with in the project. Motivation and co-ordination of agents which are involved in a CEPG-project are the key challenges at the relational level of project management. Public administrations are well advised to build up and develop skills in this area internally and not to completely rely on external support. For public administrations which are in charge of economic policy contacts with stakeholders or potential clients like interest organisations of entrepreneurs, top managers and owners of key firms in the regional economy are essential for the success of economic policies both operationally and strategically. Project managers therefore should have a sound knowledge concerning the relational or social level of project management. It is supportive if people from the administrative department which is in charge of economic policy affairs are well integrated both in formal and informal networks of relevant agents of economic policy in the region. 3. 4. Focusing the projects scope and large numbers of stakeholders Designing guidelines for regional economic policy is a genuinely political process and therefore it is according to Niskanen (Š4Ë, p.321) a process of achieving consent on governmental actions. … Consent should be considered superior to any of the other criteria by which social actions are also evaluated. In CEPG-projects defining the projects scope what is included in the project and what is not is a particularly delicate issue because of the broad range of stakeholders with diverging expectations of scope. Stakeholders need to be integrated in the process of defining project scope which makes achieving a consensus which is crucial for the projects success! difficult. External stakeholders from outside the public administration and often even internal stakeholders from other departments of the same administration which are affected by the CEPG-project cannot be controlled by the project manager. Like in other public sector projects, even though the project manager may be ultimately accountable, governance of a CEPG-project and credit for successes must be shared (Wirick Š8Ë). the projects Diagram 2: Acceptance vs. focusing of guidelines. In a CEPG-project the number of people included in the process of creating guidelines will be large because this is beneficial for the guidelines legitimation and acceptance in the public. Economic policy actions and decisions of regional policy makers can be legitimated by medium term guidelines. The acceptance of economic policy actions will increase if actions can be explained easier to the public by referring to a coherent set of guidelines thus demonstrating that policy actions are not the result of ad-hoc decisions but are based on a strategic plan. But stakeholders in the project might want to pursue individual interests in the project even under the assumption that there exists a basic consensus on a common regional interest. The participation of a large number of stakeholders in the project makes the search for compromise as a precondition for consensus difficult because the variety of issues to be dealt with in the economic policy guidelines is high and thus the expected degree of focusing of guidelines is low. But attaching priority to well defined topics and strategies is necessary for budget reasons because it will be both difficult and most likely ineffective to finance a something-for-everyone bundle of strategies and measures to be derived from the guidelines. It is also questionable whether such guidelines are helpful for economic policy or even if the guidelines can be taken serious at all because (nearly) any policy action and even contradictory policy actions can be justified with reference to such guidelines. As both the acceptance of guidelines and the degree of guidelines focusing are a function of the number and diversity of stakeholders involved in the project a trade-off between these two goals emerges (see diagram 2). The trade-off between acceptance and focusing of guidelines therefore has to be addressed when those policy fields are defined which ought to be covered by the guidelines. It is an important task of project management at the methodological level to apply methods which allow increasing both acceptance and the degree of focusing of guidelines. In the diagram this would mean a shift of the trade-off curve outward from the origin. A simple method to achieve this based on a careful structuring of stakeholder participation in work groups and agenda setting for the workgroups by the project management has been presented in Scherrer Š7Ë. 3.5. Summing up: Project management is a useful tool for handling a CEPG-project The analysis showed that project management is a useful tool to for handling the process of creating economic policy guidelines at the sub-national level. The process of creating such guidelines has all the characteristics which constitute a project. The projects purpose and major deliverable is to develop a coherent concept for focusing regional economic policy strategies in a medium term perspective. CEPG-projects might start in a pre-project phase as a potential project but they soon will change to a pioneer project and finally to an acceptance project as it runs through several project cy cles. A major task of project management is to strike a balance between project scope, time and cost constraints by applying project management at the functional, methodological, and social levels. Key skill requirements of the project manager of a CEPG-project are both at the functional level and most of all at the social level, while at the methodological level it is less problematic for a public administration to outsource specific tasks to external agents. The acceptance of guidelines by stakeholders and by the wider public and a high degree of guidelines focusing are important project goals. As both goals are a function of the number and diversity of stakeholders involved in the project a trade-off between these two goals emerges. Dealing with this trade-off is one of the major tasks of project management in a CEPG-project. BIBLIOGRAPHY Š1Ë Joyce, P., Strategic management for the public serv ices, Open University Press, Buckingham, 1999. Š2Ë Kuster, J. et al. (eds), Handbuch Projektmanagement, 2. ed., Springer, Berlin 2008. Š3Ë Lock, D., Project management, 9. ed., Gower, Aldershot, 2007. Š4Ë Niskanen, W. A., The opportunities for political entrepreneurship, in: W. A. Niskanen (ed.), Policy analysis and Public Choice, Edward Elgar, Cheltenham, 1998, 321-328. Š5Ë PMI Project Management Institute, Project Management Body of Knowledge (PMBOK), 4th edition, 2008. Š6Ë PMI Project Management Institute, Five challenges and trends affecting how project management works in todays public sector, http://www.pmi.org/Pages/default.aspx, download: 2010-04-03. Š7Ë Scherrer, W., Administrative and politico-econom ic Issues of creating strategic economic policy guidelines at the sub-national level, in: M. Vintar and P. Pevcin (eds.), Contemporary Issues in Public Policy and Administrative Organisation in South-East Europe, University of Ljubljana, Ljubljana, 2009, 203-219. Š8Ë Wirick, D., Public-Sector Project Management. Meeting the Challenges and Achieving Results, John Wiley, Hoboken/N.J., 2009. Importance of Strategic Management Accounting for Bank Management UDC: 005.51:336.71 ; 007:336.71]:004 Snežana Knežević¹, Miloš Milosavljević¹, Veljko Dmitrović¹, ¹Faculty of Organizational Sciences, Belgrade As part of significant dynamic changes in the banking sector, the aim of this paper is to identify the information portfolio for strategic management in Serbian banks. Foreign banks entering the domestic market of banking products have caused the competition in the banking sector to increase, which fostered the information to become a resource of primary importance for the formulation of the banks strategy in various business segments. 1. Introduction Strategic decisions refer to the conduct strategy and actually define the level to which a bank is developed, the profits distribution, the capitalization level, the decisions on reorganization, the development of the existing and the introduction of new bank products, etc. The complexity of the strategic management accounting techniques themselves in the banks goes far beyond those quoted and described in the academic studies so far Š1Ë. As each decision can be good to the extent to which its information basis is reliable, information can be said to have become a strategic resource of management. Certain authors maintain that the information is as important as the strategic technique implemented Š2Ë. Regardless of the fact that the earliest reports on strategic management accounting appeared only a couple of years ago, the research conducted in this work has shown that a large number of banks in the developed market world introduced some of its segments years ago. For example, a large number of banks facing a rather fierce competition characteristic of financial market conducted a host of analyses in which they compared themselves to the competition, especially in the domain of cost management, using a considerable information potential of the management accounting. 2. Strategic management accounting as support function to strategic management The strategic management accounting is a modern academic response to the impulses created by a dynamic business environment. An increasing need of the bank management for the methods and models relevant in decision making in the conditions when the incremental changes in the environment are replaced by radical and content changes, demanded that the academics and practitioners should focus upon external, rather than internal elements in the analysis of the banking operations. The strategic decisions characterised by a mobi lization of all the bank resources become crucial in business operations, therefore the introduction of new management accounting techniques has become a logical answer to new requirements. Our aim in this work is to present essential potentials and a real reach of modern strategic management accounting techniques, as well as their approprieteness for business decision making in the banks. The top managers in the bank concentrate on longterm strategic decisions. Hence they need information that can help them make decisions on integration and acquisition, as well as on planning new bank products. The empiric studies so far have expressly stated that the role of the strategic managemnt accounting in creating an adequate information portfolio is significant, however, the conclusions are somewhat ambiguous as regards the strategy itself on the basis of the information generated by the strategic management accounting Š3Ë Š4Ë. The middle level bank managers tend to focus upon the medium-term decisions, such as the events that may affect the banking institutions operations in the following year. Hence they need information necessary for the budget analysis, for a short-term forecasting, and for the analysis of deviations from the planned performances. Strategic management accounting can be defined as a form of management accounting that uses a set of information concerned with external business and non-financial factors alonside the traditional, internally generated accounting information, as the information input. The basic importance of such an analysis is reflected in a better communication of the business decision making and strategy. The logic of such a categorization and the scope of this definition have, however, resulted into a divergent interpretation of the strategic management accounting elements. Different definitions of the components of strategic management accounting can be seen from the survey of the literature so far published in this field. Thus, for ex ample, one of the pioneering works in this field developed a conceptual framework that supports the importance of competitive information on the market share, the scope of production, costs, prices, money flows and other elements required to conduct a corporate strategy developmet analysis Š5Ë. Other authors have additionally contributed to the development of strategic management accounting based on this so-called competitive strategic analysis Š6Ë. They highlight the importance of the strategy analysis of costs and a consequent requirement that costs should become an integral part of strategy. On the other hand, an analysis is developed focused upon market indicators, primarily related to meeting the consumers needs with continuously taking attributive costs into account. It is important to stress the accountants willingness in management accounting to valuate the brand, contrary to the rigid standards of financial reporting Š7Ë. The third aspect of strategic management accounting refers to the analysis of value creation in the relations with suppliers and customers. All the activities classed as primary activities and logistic acitivities are included in designing the product or the service for the customer, and hence in the resulting value creation for the customer Š8Ë. Specific aspects of the analysis refer to the theoretical approach that explicitly links the supply chain re-configuration with the change in profits resulting from the strategic decisions implemented Š9Ë. Numerous specific techniques developed within the mentioned global categories, the derivates of theoretical study, do not, however, show a high level of correlation with the level of practical usability of these same techniques. In the conditions when the real sector is consolidated, on one hand, and when the business banks are active in their credit support to the economy, on the other, the importance of the implementation of strategically oriented management accounting by the bank management will be greater. In case of long-term credit sources in general, and especially in case of the financial support to the economy, it is necessary that the bank should have long-term and high-quality capital sources. The implementation of the strategic management accounting model in banking enable the banks to profit from their comparative advantages, especially in the further process of developing financial market, and on the basis of the information obtained on the environment. of the bank. It is dynamically dimensioned as it ensures business information in a changing environment. Strategic decisions require that the management provide information for the future action. Certain studies point to the fact that the majority of strategic management accounting features has long become inherent to banks and other business organizations Š10Ë. Strategically oriented management accounting is a source of information oriented towards management, concerned with the future rather than with the past, especially oriented towards strategic business units and to the most important resources of banking business operations their own capital as a guarantee, the human resources and the investments. The awareness of the competitive conditions itself makes the key difference between the strategic and the traditional management accounting Š11Ë. The information potentials of the strategically dimensioned management accounting for the needs of the bank management evolve along with the changes in the information technology. The studies in the field of information support of management accounting to business organizations conducted so far have predominantly focused upon the identification of dimensions and upon performance measures Š12Ë Š13Ë, however, there is a lack of studies focused upon a specific impact of the strategic management accounting information on the bank performance. There is no universal concept nor model of information of strategic character that can be applied in efficient bank management in a longer term and for the purpose of finding adequate solutions to all management problems. The domestic banks prefer to use the information products of financial and accounting type within a global accounting system, rather that management accounting type Š14Ë. A reliable accounting information system should ensure the following: 1. information gathering, classifying and processing at lowest costs; 2. prompt provision of various surveys, financial reports and tax returns; 3. generating of valid accounting information of suffi cient scope; 4. prevention of thefts and any other financial misuse, i.e. reducing these to the least possible amount; 5. comparison of current and previous financial reports or those accomplished with targeted values. The strategically oriented management accounting is expected to provide a strong information support that will allow for the execution of preventive measures for the purpose of eliminating ineffective business results In this sense it is necessary that the management accounting be first incorporated into the banks accounting system, and then assigned a strategic role. This will be inevitable in the conditions of an increasing compe tition among banks, as well as in relation to non-banking financial institutions (especially in unfavourable current events on the banking market, where it is necessary that strategic information potentials and efforts be focused), how to grab a client or a bank customer before the others?. Besides, the introduction of a longterm crediting of a company as a bank client will contribute to the importance of strategically oriented management accounting for the bank management team decision making as to the method and conditions of the long-term placement of the banks assets. In the prospective balance analysis segment where a dynamic aspect or forecast information is relevant in making good business and financial decisions, strategically oriented management accounting can be highly beneficial. The very strategic orientation of management accounting must not have any implications upon the practical usabulity of the techniques and the analysis procedures themselves, and this has been the issue of a lively debate in the past decade Š15Ë Š16Ë. Both the traditional and the strategic management accounting must have a pragmatic dimension Š17Ë Š18Ë. 3. Actualization of importance of information for banks With the market globalization and an increasingly fierce competition in both the national and international fields the importance of an adequate banks risk management is especially actualized. In such circumstances the banks strategic management needs the reports on the risk profiles as well as on the banks need for capital for the purpose of capital budgeting and an adequate management of risks immanent to banking operations, all in order that a long-term financial stability of the banking institution be established. The bank capital can be observed from various points of view, namely: (1) organizational capital as a method of banks business doing; (2) intellectual capital which primarily includes human resources; and (3) capital in the form of clients and customers of the bank. valid information to be used in defining the alternate directions of strategic activities, primarily for a strategic positioning of the bank. A strategically dimensioned management accounting is also highly important in the strategic control process, i.e., in the comparison of achievements with the budgeted values in order to identify discrepancies and define appropriate corrective steps to be taken. In the current turbulent conditions of operations on the financial market, the critical competency of the banks strategic management achievement becomes a competence to generate the value for both the bank owners and the consumers of the bank product. The bank top management is particularly interested in the market and competitive environment changes, hence the management accountants are expected to provide not only internal information (flows within the bank) but rather external one information about financial market as well as about competition, namely, the information on the environment. The strategic performance of the bank is oriented towards the segments of profitability, efficiency, effectiveness, competitiveness and flexibility. Of paramount importance in this sense is a high quality the management-accounting information for an qdequate management of bank information, as well as for measuring the performance of the bank management. In assessing the business efficiency, banks prioritize the methods of cost control, as well as the productivity of the bank personnel in managing its assets. For the banking operations to be efficient the bank requires an adequate portfolio of financial resources. The banks financial health depends primarily on the bank management. An adequate management of financial resources requires valid and timely information. Particularly important are the reports on the client and customer receivables management as regards their negotiability, maturity and a policy to correct them. As a logistic support to strategic management the banking controlling fosters the development of a longterm oriented management accounting, in the implementation of an optimum strategy to achieve the set goals of the bank, especially the optimum cost strategies Š19Ë, as well as an adequate management of the bank productivity. Reducing the price of the bank products to a lower level ensures the bank a more favourable position in comparison with its competitors. The current changes in international banking have made the bank management process more complex. The primary responsibility of the management is to ensure that the bank has efficient risk control and risk management systems. Risk management should be a daily activity of the managers of respective business fields of the bank. The bank management should also introduce an adequate internal control which will include internal auditing too. A strategically oriented management accountant can be called the information-for-the- future manager and is expected to supply the banks top management with Significant innovation on the financial market that emerged in the last few years and the internationalization of financial flows have radically changed the nature of banking. On the global level, banks are becoming increasingly engaged in the development of new instruments, products, services, and techniques. Not so strict legal regulations and technological process in this field allowed for a fiercer competition to take place between banks and non-banking institutions. In such circumstances, the resource of crucial importance for change management is (sufficient in scope and satisfactory in quality) business information. In order to survive on the dynamic market today, the bank has to change faster than its competition. A strategically focused management accounting is an efficient instrument developed for the purpose of strategic management of the bank. It disposes of information required for tracking, analysis and cost control and the bank product price calculation, as well as for the assessment of market potentials and the client and customer profitability, capital management and financial performance, the dynamics of business assets for the information needs of trading on the financial market, etc. The role of an adequately designed strategic management accounting is crucial in a long-term management of the human resource and moneraty activities of the bank. The implementation of the strategically oriented management accounting always means the implementation of new techniques in the analysis, such as the activity based cost calculation, the balanced scorecard and various techniques of strategic capital budgeting such as strategic cost management in the value chain, the technological path tracing, the application of fuzzy sets in quantitative analysis, the real option valuation etc. The information potential of a strategically oriented management accounting has to be continually reshaped to be able to accomplish the tasks of the information recipient strategic management primarily, but also other management levels, which means that the quantitative selection of information is continually under way so as to avoid the situation of excess information. Besides, the information potential of the bank strategic management accounting is expected to produce highly actualized information, full, timely and as accurate as possible. Given the dynamic changes on the financial market, this type of accounting should be in a process of continuous evolution. Besides a more intensive competition between different types of banks, the threat that non-financial institutions will expand into the banking product sector is an additional incentive to banks to implement the strategic management accounting concept Š20Ë which is market-oriented. The strategic management accounting concept requires to be further developed in order that it should prove its full role and advantages in defining concrete situations. It is necessary that the usability of the strategic management accounting be researched into, especially in the field of the competition analysis in the conditions when the competition operates in a different economic, political and cultural environment. In order that domestic banks should estimate the losses in accordance with the relevant standards, it is necessary that they anticipate events related to credits, and this is where the macroeconomic statistics information is of special importance, though it is not transparent and satisfactory in scope yet. Such information would help make use of information advantages of strategic management accounting in the process of making high-quality decisions for the needs of an efficient placement of the banks assets. The rise in the bank capital means a better chance for the bank to acquire big and significant clients. There is an intention that banks that already achieved a stable financial position redirect a portion of their placements from retail business to economy, that is, to grant more loans to economy which would in turn increase the importance of the strategic management accounting. In addition, due to a substantial growth of capital of the banks in this country, i.e., due to intensive recapitalization, the role of an adequate longterm bank capital management becomes increasingly important. For example, many banks did not earn adequate return rates on the capital invested. It is necessary that domestic banks implement the instruments of the strategically oriented management accounting to a larger extent in order that they should maximize the value. Management accounting is a relevant information instrument in the strategic management process. The collaboration of accounting and strategy is thoroughly analysed in numerous academic and empirical studies Š21Ë Š22Ë Š2Ë. Finally, it is important to point out that there is no universal accounting model developed for the needs of strategic management; it is necessary that every bank should create a model that will be compatible with possible changes on the financial market (to the extent to which it is possible to predict) as well as with adjusted characteristics of a particular bank. The strategic management of the bank performance can be described as an activity of management a bank financial standing for the purpose of defining the opti mum relationships on two levels: returns maximization and satisfying the requirements of regulatory institutions Š23Ë. The strategy consists of a series of concrete activities that the banking institution undertakes in order to accomplish its mission. Each concrete activity is autonomous. The activity has to support the banks mission, however, it also has to observe the principles of successful business doing. Hence it is necessary that the bank has a developed management accounting to implement project strategies in the segments of budgeting, tracking and reporting on costs, profitability, and other important bank performance. 4. Factors that impact the sma implementation into the bank information system The strategic management accounting is based upon the research into information in accordance with the needs to make certain business decisions, rather than with the current trend or information availability. The strategic orientation of management accounting requires that the necassary information meant to be the basic input in the analysis be externally oriented. Consequently, the need for defining the bank environment and the basic ways of communication between the bank and the relevant environment arises. The environment itself can be viewed via a value chain and the relationship of the bank with the clients, with the investors, and with the creditors. A far greater adequacy and importance, however, should be assigned to the competitive environment of the bank. The bank competitive position itself is viewed from the point of view of the current, as well as an anticipated competitive environment. The competitive position is monitored by the implementation of the competition cost assessment technique, by defining costs per unit of service, by the analysis of competition technology, by defining the economy of scope, by the calculation of market share per different market niches of the banking sector, as well as by defining the scope of services delivered and the returns on services. The analysis itself is strategically conceived and planned to be of a long-term character. Hence it is not the current values that should be analysed, but rather the future ones. The orientation towards long-term elements in the analysis means the implementation of a target oriented cost allocation and the cost analysis throughout the life cycle of particular financial services, but also of the life cycle of the bank as an entity of analysis. To be specific, a bank in a domestic economic environment has to conduct a comparative analysis of its market position and the earning capacities of all exist ing banks, as well as of other financial institurions that to a larger or to a smaller extent form a competition to a current or planned mix of the given banks services. In addition, the aspirations of foreign banking institutions to penetrate the domestic banking market also have to be taken into account. Consequently, a relevant competitive environment does not mean only the present, but also the anticipated competitors, as the analysis is of a long-term character. The environment defined, it is necassary that an analysis be conducted of the information that the bank has to generate for the purpose of an appropriate strategic management-accounting analysis. The strategic management accounting and the techniques based on it use the existing set of information, however, reveal entirely new information requirements. For example, an increasing leaning on the marketing concepts preconditions the change in cost allocations in accordance to the customers tastes, as well as measuring the quality costs and valuating the brand of the service itself and of the bank as an entity. The bank that insists on the strategy of differentiation of its products will not focus upon the unit price of the service, but rather upon the development of new services and upon marketing costs. The interdependance and interrelation of required information and the bank development strategy is by far more complex than the previous illustration, however, this elaboration is beyond the domain of this work. Here the attention is focused upon the creation of the model that will support the required information portfolio of strategically oriented management accounting for banks. The empirical research corroborates the relative arrangement, formality, and structure of the relationship between the strategy and the other functions in the business organizations Š24Ë. The information system that will support the strategic orientation of management accounting includes elementary subsystems for: planning and analysis of bank costs; planning and analysis of bank income, expenditure and profits; planning and analysis of bank capital; identifying risk profile and the banks need for capital; monitoring the competition among banks, in relation to non-banking institutions; provision of specific profitability analyses; planning and analysis of cash flows; monitoring and conducting executive actions;  coordination with the accounting and marketing information systems for the purpose of the analysis of the current clients and customers, as well as an insight into prospective banks clients; ecological and other issues of socially responsible business. The classification itself is not ultimate in character; in accordance with the needs of a particular bank it is possible to define others, leave out some of the above quoted or redesign the existing sub-systems of the strategic management accounting. 5. Conclusion The objective of financial management, as well as of the bank capital management is to maximize the banks value within the profitability and the risk exposure levels. Since risk is immanent to banks, the task of the financial management is to manage various types of risks in such a manner that will allow for the achievement of the desired profitability, reasonable risks included. This requires that three types of activities should be performed: risk identification; quantitative statement of risks (if this risk is immanent to the particular type of risk); risk exposure controlling. In order that the abovementioned tasks should be efficiently accomplished, it is necessary that the bank develop adequate business, and especially financial policies, as well as implement information logistics. Besides, the bank management should be informed on the risk profiles and the bank capital needs, in order that they should timely undertake appropriate steps on the strategic plan, which is the domain of the strategically oriented management accounting. The latest trends on the financial market, conditioned by the competition growth and the increase in the direct capital transfer highlight the necessity of implementation the strategically oriented management accounting for the banking purposes. This accounting is in turn one type of early identification information system that signals possible opportunities and threats. Namely, however important the what happened may be, the what will happen is more important. REFERENCE Š1Ë Scapens, R.W., and Bromwich, M. (2001). 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Structure, formality and the importance of financial and non-financial information in strategy development and implementation. Management Accounting Research, 18, pp. 3-31. Budgetary Changes at Local Level in Slovenia in Crisis UDC: 336.14:352(497.4)2008 ; 338.124.4(497.4) Uroš Pinterič School of Advanced Social Studies, Nova Gorica uros.pinteric¿fuds.si XII International Symposium SymOrg 2010, 09. 12 june 2010. Zlatibor, Serbia Article is addressing one of most up to day topics of social sciences today economic crisis and its impact. Author is trying to find elements of local budgets that could indicate financial instability at the local level in Slovenia. On representative pattern of municipal budgets he is trying to find changes that could be caused by the economic crisis. However, until 2008 when last budgetary data are available today, he is not able to indicate any serious change that could be systematically connected to the economic situation. 1. Introduction So called economic crisis that started in the middle of 2008 caused different consequences and reactions at all levels of social system in individual countries as well as on supranational levels. Despite one can strongly doubt about solely economic nature of present crisis, it is truth that main effects were connected to the national as well as international economy. However, all different cases showed so far that economic circle is strongly connected also to the politics, policies and public finances on different levels. One can remember the French support for car industry that was strongly criticized by EU despite effects of French governmental subsidies to the car industry had strong and positive spill over effect in other EU countries such as Slovenia. Main criticism about protectionism of national economies can be at least doubtful. On the other hand, economic crisis connected to the British money saved in stable Icelandic banks showed how combination of economic crisis, increasing external debt and lack of appropriate policy reaction can lead to the bankruptcy of the stare and political crisis, leading to overthrow of government. State cases of different reactions can be translated also to sub national, local level. We argue that on the local level financial crisis can be even more intense. We expect that municipalities with dominantly rural background will be less affected by financial crisis than those with predominantly industrial or post industrial economy. We expect as well that, later municipalities will realize lower tax revenues and they will change structure of expenditures in a way to keep at least existing bureaucratic expenditures. On the other hand municipalities will try to shrink investment and maintenance expenditures while they will have to increase so called social transfers especially those connected to the maintaining certain level of social security. Thesis above will be verified on the case of 24 out of 210 Slovenian municipalities in the timeframe 2005-2009. Slovenia has 12 statistical regions and we will take one rural and one industrial municipality for each region and we will avoid municipalities with special status when possible. Statistical region Goriška Gorenjska Osrednjeslovenska Savinjska Koroška Podravska Pomurska Zasavska Posavska Notranjsko-kraška Obalnokraška Jugovzhodna Slovenija Table 1: List of municipalities Higher share of employees in agriculture in region (as share of employees in agriculture compared to total active population) Brda Vodice Moravče Solčava Prevalje Starše Moravske Toplice Trbovlje Brežice Postojna Hrpelje Kozina [kocjan Lower share of employees in agriculture in region (as share of employees in agriculture compared to total active population) Ajdovščina [kofja Loka Mengeš Nazarje Mežica Hoče Slivnica Lendava Hrastnik Krško Cerknica Piran Straža Source: Š2Ë None of selected municipalities has special status of city municipality (that brings special position in local government system in Slovenia), however in some cases there are differences in size (area as well as population). Concrete municipalities were selected randomly on the basis of relative share of employees in agriculture. In Zasavska and Posavska region, difference between selected municipalities is relatively low. 2. Measuring effects of economic crisis on local budgets Economic crisis seems to be most frequent phrase in 2008/10. Brake down of world economy started in mid-2008 officially. However, in August 2007, newly appointed Governor of Bank of Slovenia at meeting of European Central Bank make comment on economic situation that was strongly criticised in European and Slovenian national monetary space. He said that »if there will be stronger turbulence they can cause negatively on demand of households«. The statement was in the context of American mortgage crisis and its effect in EU economic space. His comment was diplomatically marked as inappropriate (as also some others further on), but it was academic warning from political person that should not happen. However, he just warned that what is going on can have global consequences for economy. However he just warned from one thing that was best presented by late US stand up comedian George Carlin who well defined the main problem of economic crisis that emerged. People are spending »Money they dont have on things that they dont need«. He only forgot to add that they will probably not be able to pay for a life-time. Any economic situation can be explained generally in two different ways. First there is Smiths invisible hand of market balancing the market to achieve moments of optimal ratio between supply and demand. Second, opposite pole is system of state intervention in market economy, generally to prevent few important market failures, such as negative exteralies, providing so called public goods where private economy is not interested or it can ride on natural or created monopoly where demand is irrelevant and consequently service is not provided adequately or prices are not optimized by market. However, politics/government is strongly connected to the economy or private »players« who hold important positions and can provide economic support to the different political »players«. Over the time this led to strong bonds between economy and politics, causing lobbying, corruption and clientelism. In this condition natural monopoles are generally outsourced to private sector after initial investment. In this sense state finances private monopoly or oligopoly by out sourcing service to one or few private companies who can realise high or medium high profits with more or less no entrance costs and all additional cost are generally paid by final consumer. Under such circumstances it is hard to believe that market economy as well as state driven economy can work separately or together without serious failures. As we said previously we expect that economic crisis will have certain effects on revenue as well as on expenditure side of local budgets. We could simply take just different types of revenues, maybe create two general categories of tax and non-tax revenues and try to explain potential differences. However, we believe that economic crisis is not day to day phenomena but has longer development procedure. Due to above mentioned history of current economic crisis we believe that in the case of local government following pattern took place. Personal income tax rates shall drop only in 2008 and fall even lower in 2009, Real estate tax together with interest rate tax shall get lower in 2008 as well. Government subsidies form national budgets allow municipalities with lack of their own resources to cover at least so called level of appropriate consumption that is calculated each year for next fiscal year and should be adequate for maintaining developmental status quo in certain municipality. One can assume that state subsidy will not change significantly due to same uncertain economic situation at national level. Salaries in municipalities on the expenditure level are one of most stable budgetary elements. Regular transfers will slowly increase in 2008 while different investments will be lowered. We can expect that level of transfers will increase slower than level of investments will fall due to the fact that the difference will cover current expenses for public administration. All categories of expenses will be compared to total expanses. Empirical results Gathering empirical data, we were not able to get data on budgets of municipalities for 2009 yet. At the same time it is important to stress that in 2006 there were local elections and in 2007 there was change of municipal finances legislation increasing the share of personal income tax belonging to municipalities to 54%. Due to lack of data for 2009, we are not able to say if small drop of personal income tax at national average is already consequence of crisis or it is within normal fluctuation. However, we can argue that in all municipalities where change of personal income tax is higher than 5% it is consequence of migration of pop ulation, and we believe if net flow is negative as in Trbovlje, Lendava, Moravske Toplice it is also first sign of change in economic situation Brda Ajdovščina Hrpelje-Kozina Piran Vodice [k. Loka Solčava Nazarje Prevalje Mežica Starše Hoče-Slivnica Moravske Toplice Lendava Moravče Mengeš @užemberk Trebnje Brežice Krško Trbovlje Hrastnik Postojna Cerknica National average 39,6% 39,7% 22,6% 35% 50,4% 48,5% 10,8% 33,3% 39% 46,7% 31,8% 41,3% 19,1% 29,5% 40,1% 57,9% 23,4% 32,8% 31,4% 27,6% 41% 25,6% 49% 22% 40,4% 37,7% 41% 26,5% 20,8% 34,7% 44,7% 11,6% 32,2% 42,5% 44,1% 29,2% 44% 19,7% 24,7% 37,7% 60,5% 23,7% 31,2% 30% 29,5% 47,3% 34,9% 40,9% 31,3% 39,3% 54,8% 54,2% 53,8% 28,6% 45,6% 51,7% 56,7% 50,7% 61,8% 68% 55,2% 64,3% 54,2% 57,3% 52,9% 60,6% 69,7% 62,3% 58,9% 42,7% 62,4% 62% 52,2% 54,2% 51,7% 58,1% 56,3% 41,2% 34,4% 58,9% 51,6% 45,8% 57,1% 60% 52,4% 54,2% 62,8% 37% 47,3% 72,3% 66,2% 58,4% 57,3% 49,1% 37,8% 46,6% 55,2% 43,6% 56,9% 49,4% Table 2: Personal income tax Š1Ë Real estate and financial taxation indirectly shows how much can people and economy effort bigger expenses. Table shows very good the interest for certain municipalities. In this sense it is obvious that after the break of real estate market prime location like Piran (tourist location at the seaside) or Mengeš (suburb of capital) be come much more interesting. While other locations kept their average interest rates. Measured via real estate tax income that is paid in the municipality where sold real estate exists). At the same time it is obvious, that in 2008 overall real estate taxation indicates that slightly lower number of real estate transactions was made. Brda Ajdovščina Hrpelje-Kozina Piran Vodice [k. Loka Solčava Nazarje Prevalje Mežica Starše Hoče-Slivnica Moravske Toplice Lendava 0,6% 1,6% 2,6% 5,3% 9,9% 3,2% 0,1% 1,5% 1,2% 1% 0,6% 2,3% 1,2% 1,1% 1,1% 1,9% 3,7% 4% 3,8% 2,9% 0% 2,6% 1,8% 1,1% 0,7% 4,1% 1,7% 1,5% 1,2% 2,3% 5,2% 8% 2,9% 2,4% 0,5% 1,5% 1,3% 1,1% 1% 3,4% 1,7% 1,3% 2% 1,4% 3,7% 7,6% 3,2% 2,2% 0,3% 1,5% 1,1% 0,5% 0,4% 3,1% 1% 1,1% Moravče Mengeš @užemberk Trebnje Brežice Krško Trbovlje Hrastnik Postojna Cerknica National average 1,8% 4,5% 0,7% 1,6% 1,6% 0,9% 1,9% 0,8% 2,6% 1,5% 2,8% Table 3: Real estate and other financial taxes 1,8% 3% 1,1% 1,8% 1,7% 1,1% 1,7% 0,6% 3% 1,2% 2,7% 2,4% 4,1% 1,2% 2,5% 1,7% 1,2% 1,5% 0,6% 3,1% 2,3% 3,3% 1,7% 6,2% 1,6% 1,7% 1,3% 0,9% 1,1% 0,7% 2% 1,8% 2,6% Š1Ë Government subsidies are in opposite relation with personal income tax in relation to change of legislation in 2007. However, it is more than evident that certain municipalities such as Solčava, Moravske toplice or Mežica are facing certain difficulties and are getting new injection of subsidies after one year of relatively low state budgetary participation. On the other hand it is not possible to assure that governmental participation is strictly connected to the economic situation. Brda Ajdovščina Hrpelje-Kozina Piran Vodice [k. Loka Solčava Nazarje Prevalje Mežica Starše Hoče-Slivnica Moravske Toplice Lendava Moravče Mengeš @užemberk Trebnje Brežice Krško Trbovlje Hrastnik Postojna Cerknica National average 25,6% 20,5% 14,4% 3,9% 9,1% 6,9% 80,3% 38,8% 31,1% 27,5% 20,6% 20% 51,5% 29,8% 38,7% 3,5% 61,7% 28,8% 34,5% 20,5% 16,4% 21,2% 8,7% 21,9% 18,8% 24,4% 21,5% 19,6% 5,1% 1,7% 5,1% 78% 34,5% 25,2% 22,2% 33% 16,8% 54.5% 31,4% 34,5% 3,9% 61,4% 29,6% 33,9% 21,4% 13,8% 23% 13% 24,3% 18,7% 11,9% 4,8% 6,8% 5,7% 1,4% 2,8% 28,8% 13% 7,7% 8,1% 10,1% 3,1% 13,5% 15,1% 4,6% 0,3% 17,4% 6% 10% 6,6% 3,8% 2,6% 8,7% 8,9% 7,4% 3,6% 0,9% 9,9% 5,6% 3% 2,5% 46% 16,2% 3,5% 18,7% 8,9% 8,7% 46,4% 17,1% 5,8% 0,8% 21,3% 8,4% 18,5% 3,4% 3,7% 2,5% 5,7% 7,5% 7,9% Š1Ë Table 4: Government subsidies On the expenditure side of local budgets salaries are one of main expenses in municipalities. Other current expenses and social security subsidies are not included. Despite it seems that salaries are more or less constant with slow ratio of becoming less significant part of mu nicipal budgets, one can argue, that they are not systematically connected to the economic situation. Due to governmental measures taken in 2009 only in this year it will be possible to indicate first signs of changes in the field of salaries. Brda Ajdovščina Hrpelje-Kozina Piran Vodice [k. Loka Solčava Nazarje Prevalje Mežica Starše Hoče-Slivnica Moravske Toplice Lendava Moravče Mengeš @užemberk Trebnje Brežice Krško Trbovlje Hrastnik Postojna Cerknica National average 6,6% 4,5% 4,2% 7,4% 4,1% 5,5% 9,8% 5,8% 7,5% 5,6% 8,2% 5,9% 4,6% 9,7% 7,8% 6,2% 3,2% 4,5% 5,1% 5,4% 5,3% 4,7% 7,7% 2,6% 5,6% 6,1% 4,1% 3,6% 6,7% 3,4% 5,6% 12,7% 4,8% 7,1% 5,2% 5,8% 6,7% 4,1% 5,6% 6,6% 4,9% 3% 4,1% 4,3% 5% 6,2% 6,2% 6% 3% 5% 5,8% 3,6% 4,5% 7,1% 5% 4,9% 10,4% 3,4% 6,9% 4,8% 8,2% 5,7% 4,5% 9% 4,9% 6,4% 3,3% 5,1% 5,3% 5,2% 5,7% 6,3% 4,1% 3,8% 5,2% 6% 4,1% 3,6% 6,5% 6,7% 5,6% 8,6% 3,3% 6,9% 4,2% 7,7% 4,7% 3,2% 6,1% 5,8% 6,1% 3,5% 4,1% 4,5% 4,1% 4,5% 5,5% 5% 3,4% 4,9% Table 5: Salaries and other payments to employees (without social subsidies and other current expenses) Š1Ë As well as salaries of municipal civil servants also social transfers to private sector and households are slowly lower and lower and in this sense until 2008 it is not possible to confirm that economic crisis demanded any serious measures taken by local authorities in order to protect social stability of areas. On the other hand, we can see that certain municipalities have issues from time to time that are not connected directly to general economic situation but can be more result of local situations. Brda Ajdovščina Hrpelje-Kozina Piran Vodice [k. Loka Solčava Nazarje Prevalje Mežica Starše Hoče-Slivnica 41,6% 34,4% 26,1% 40,7% 33% 30% 33,4% 38,7% 36,3% 35,4% 37,8% 37,6% 34,3% 31,4% 29,5% 36,3% 26,9% 28,4% 29,5% 29,5% 32,8% 32,4% 25,2% 44,1% 30,5% 29,8% 36,2% 38,3% 32,8% 22,8% 23,9% 23,6% 29% 42,2% 32,5% 37,4% 29,7% 32,8% 25,6% 34,5% 38% 24,5% 15,4% 23,8% 29,4% 36,2% 34,1% 31% Hoče-Slivnica Moravske Toplice Lendava Moravče Mengeš @užemberk Trebnje Brežice Krško Trbovlje Hrastnik Postojna Cerknica National average 37,6% 32% 37,5% 37,5% 40,3% 36,2% 36,3% 52,9% 38,8% 36,7% 25,7% 38,6% 20,9% 38,5% 44,1% 30,4% 23,5% 36,6% 39,5% 27,1% 32,4% 43,6% 33,1% 42,8% 35,3% 30,9% 24% 35,4% 37,4% 27,9% 38,2% 27,3% 35,6% 35,1% 35,3% 35,5% 30,5% 36,5% 38,5% 26,8% 27,5% 35,5% 31% 17,2% 29,8% 27,8% 35,3% 34,3% 29,5% 27,8% 26,7% 29% 33,2% 24,4% 27% 33% Table 6: Social transfers Š1Ë Until 2008, national average shows that municipalities are increasing their investments into local economy or into own municipal projects. On one hand we can explain this with improving ability to use European funds and we can argue that also calls from national govern ment that public sector shall spend more in times of crisis in order to keep economy going were relatively successful. New investments after 2007 are also connected to the greater share of personal income tax allocated from national budget. Brda Ajdovščina Hrpelje-Kozina Piran Vodice [k. Loka Solčava Nazarje Prevalje Mežica Starše Hoče-Slivnica Moravske Toplice Lendava Moravče Mengeš @užemberk Trebnje Brežice Krško Trbovlje Hrastnik Postojna Cerknica National average Table 7: Investments 16,7% 40,2% 38,2% 15,2% 34% 40,2% 38,8% 19,7% 16,6% 7,7% 23,2% 17,4% 40,7% 31,2% 32,2% 30,5% 32% 27% 8,4% 13,7% 32,2% 47,7% 21,8% 58% 27,4% 26,9% 37,9% 39,6% 26,8% 44,7% 36,7% 29% 27% 20,5% 9% 10,1% 13,6% 43,9% 56,1% 25,1% 27,5% 38,4% 27,3% 28,4% 23,1% 20,1% 26,6% 38,4% 53,1% 31,3% 28,3% 46,9% 31,6% 31,2% 30,4% 42% 43,2% 28% 34,4% 18,2% 16,% 23,7% 42% 26,6% 37,2% 34.3% 36,1% 28,5% 30,4% 35,5% 31,1% 20,4% 44,4% 48,1% 33,6% 28,6% 42,1% 47,7% 23,3% 19,1% 34,1% 59,2% 33% 37,1% 35,6% 36,7% 39,6% 58,1% 33,7% 32,6% 33,7% 29,5% 30,3% 46,3% 45,5% 49,1% 35,3% 45,4% 49,7% 36,3% Š1Ë 4. Slovenian municipalities in times of economic crisis In order to get clearer picture we will certainly need budgetary data of realized budgets for 2009 and 2010 before being able to state anything ultimate about influence of the economic crisis at the local level. However, data above are indicating so far that local government is not significantly influenced by global instability. This can be explained by fact that Slovenian municipalities have relatively low policy competences, as well as they are not very active in economy. Due to the fact that corporate profit tax is state tax as well as value added tax, municipalities can be influenced significantly only by lose of personal income tax that was in 2008 not so evident (people were still employed and receiving salaries). We expect that main problems will occur in 2009 and especially in 2010 with increasing number of unemployed workers not contributing to personal income tax mass. We can argue that hypothetical changes in municipalities, as represented in introduction can still occur but with slight delay of 2-3 years. For the analyzed period we can hardly talk about any serious budgetary changes that can be directly connected to the economic crisis. It seems that other processes, such as ongoing reduction of expenses in administration and increasing level of investment into development of local infrastructure and elements providing higher quality of life are much more present. REFERENCES Š1Ë http://www.mf.gov.si/slov/fin_loksk/obrazec_P _P1/real_P_P1.htm Š2Ë Slovenske občine v številkah 2009 http://www.stat.si/doc/pub/Obcine2009/OBCINE% 202009.pdf Zero Waste as a New Concept for Sustainable Waste Management UDC: 005.6:502.131.1 ; 628.4 Nataša Petrović1, Sonja Išljamović2, Veljko Jeremić3 1,2,3Fakultet organizacionih nauka u Beogradu The generation of waste has been one of the most prevalent and least thought about byproduct of human activity in history. The burying or bumping management approaches of the past, however, are no longer acceptable: environmentally, economically, or socially. In addition, predicted levels of population, production, and consumption growth in next century will increase the quantity and complexity of waste materials. If global problems such as climate change and waste remain unresolved, society must choose to continue attempting to incrementally reduce wastes and lessen impacts. Logically, there is a need for Zero Waste, which seeks to eliminate waste wherever possible by encouraging a systems approach that avoids the creation of waste in the first place. 1. Introduction The world we have created today as a result of our thinking thus far has problems which cannot be solved by thinking the way we thought when we created them. Albert Einstein Humanity seems to assume that the world has an infinite assimilative capacity for the mountains of waste that it generates. The problem did not start with the current generation or even with the industrial revolution; rather waste has been a problem since the appearance of humanity. Many solid waste management (SWM) experts refer to waste as a necessary by-product of activity. Furthermore, the economic growth and standard of living enjoyed by many nations today appears the accumulation of waste. Unfortunately, expected growth and development trends indicate that the volume and composition of waste will make management more complex in the future. Solutions to the problems created by waste must first address the way in which waste is perceived. justify to The economic perspective is that waste is an externality to the industria1 process. However, this approach is being challenged. Industrial ecologists note that waste represents an inefficient use of raw materials and rising raw material and disposal costs may ultimately impair a business competitiveness. Municipalities and their taxpayers are also victims of increasing waste management costs, particularly in the sitting, building, and operation of high technology landfills. The concept of sustainable development, widely adopted after the Report of the World Commission on Environment and Developments 1987 report, Our Common Future, reflects the interdependence of environmental, economic, and societal issues. Management of waste, and indeed al1 pollutants, must be examined in the context of long term sustainability. So, the cur rent linear material flow from extraction to disposal is witness to resource depletion based economy and cannot be sustained. In response, many countries have adopted and promoted the concept of a waste management hierarchy based on the 4 Rs: reduce, reuse, recycle, and recover. The objective of this hierarchy is to illustrate the relative preference given to the various waste management options and to encourage diversion and ultimately reduction based programs. Solid waste management has been the focus of increasing attention by all levels of government, environmentalists as well as the public in general. As a result, a plethora of information and literature exists on the subject. In fact, each of the components of the 4 Rs has spawned numerous research studies, academic publications, professional journals, as well as conferences. The management of solid waste has traditionally been the jurisdiction of municipal governments, which have concentrated on the establishment and operation of collection and disposal systems. Perhaps this localized management explains the presence of the varied terminology and definitions for waste. The literature lists many types of waste including agricultural waste, radioactive waste, liquid waste, hazardous waste, industrial waste, and residential waste. The primary sources of waste are industrial production and human consumption and the lines between these categories are often unclear. While waste is woven tightly into our lifestyles, recent attempts to manage its disposal and/or treatment have brought attention to its very definition. In the absence of common physical characteristics, many definitions focus on waste as products or materials that have presumably been used and then discarded. The assumption is that materials and products have a single purpose and once fulfilled are useless. Waste could be defined as unusable material leftover from a process of manufacture, the use of consumer goods, etc.; the useless by products of a process, or any substance (solid or hazardous) for which the owner generator has no further use and which he/she discards, Š4Ë. The very subjectivity of this traditional view of waste is problematic because it includes all materials that are discarded, including potential secondary materials. 2. Definition of zero waste The Zero Waste International Alliance broadly defines Zero Waste as: A philosophy and visionary goal that emulates natural cycles, where all outputs are simply an input for another process. It means designing and managing materials and products to conserve and recover all resources and not destroy or bury them, and eliminate discharges to land, water or air that do not contribute productively to natural systems or the economy, Š8Ë. Unlike our current system of managing waste, Zero Waste seeks to eliminate waste wherever possible by encouraging a systems approach that avoids the creation of waste in the first place. A Zero Waste systems approach turns material outputs from one process into resources for other processes. Although there have been great strides in expanding recycling over the last decade, recycling more materials is not enough to achieve a truly sustainable economy. If materials are buried in a landfill or burned in an incinerator, industry must extract and process new virgin materials to make new products. Its as if there is a long shadow of depleted resources and wastes left over for every product and package used that is much larger than the product or package itself. The U.S. Environmental Protection Agency (EPA) also determined that Source reduction and recycling can reduce greenhouse gas emissions at the manufacturing stage, increase forest carbon sequestration, and avoid landfill methane emissions, Š6Ë. EPA determined that energy use and greenhouse gas emissions were reduced the most by eliminating waste and the reuse of materials. That is why Zero Waste emphasizes the reduction and reuse of materials first, then recycling and composting, so that resources are not unnecessarily wasted in the first place. So, we can conclude that Zero Waste: redesigns the current, one-way industrial system into a circular system modeled on Natures successful strategies; challenges badly designed business systems that use too many resources to make too few people more productive; addresses, through job creation and civil participation, increasing wastage of human resources and erosion of democracy; helps communities achieve a local economy that operates efficiently, sustains good jobs, and provides a measure of self-sufficiency; aims to eliminate rather than manage waste. Zero Waste strives for: 100% Resource Efficiency; Zero Solid & Hazardous Waste; Zero Emissions - to air, water or soil; Zero Waste in Production & Admin Activities; Zero Waste in Product Life; Zero Toxics: - to reduce risks to nature, - the presence of toxics creates hazardous waste. 3. The hierarchy of zero waste Zero Waste focuses first on reducing the volume and toxicity of waste by eliminating them in the first place. Zero Waste then focuses on reusing materials and products for their original intended uses, and then for alternative uses, before recycling. Once materials have been reduced and reused as much as possible, then Zero Waste focuses on recycling and composting all remaining materials for their highest and best use. Waste management strategies should aim at maximizing energy and material recovery while minimizing the final amount of waste delivered to landfill and the pollution related to all treatment and collection steps. Environmental problems must be solved step by step, using appropriate technological, economic and social constraints, achieving Reuse and approaching the ideal target of zero emissions may require that we have to pass through the lower levels of the pyramid of Figure 1, in order to acquire experience, knowledge, understanding and organization. Figure 1. - The waste management hierarchy, Š1Ë Ecosystems recycle every kind of waste, and the concept itself of waste is no longer appropriate. The products from one component or compartment are always a useful resource for another component or compartment. Ecosystems self-organize in such a way that all available resources are utilized to the maximum possible extent and no unused resources are left. Zero Waste encourages local and regional public-private partnerships to develop Resource Recovery Parks to provide the infrastructure and services needed to accomplish all of these functions. In a Zero Waste system, any materials that cannot be easily and conveniently reduced, reused, recycled or composted are either returned to the manufacturer direct or through retail channels, or no longer used. Nature, for itself, has life cycles function without producing waste. Goods and materials, at present industrial system, are extracted from the earths crust, transported to manufacturing sites, used to produce products (all materials not part of end product are discarded as waste), then products are transported to users and finally, at the end-of-life, discarded as waste. To eliminate or reduce waste, we can use the cyclical pattern modeled by nature as the most efficient, less costly, and most profitable, which avoids systematic deterioration of the environment. The cyclical system apply the equation waste = resource and eliminates wastes from the environment as indicated in Fig.2. Figure 2. Nature life cycle and cyclical system 4. Zero waste objectives and strategies The following objectives and strategies have to been identified in order to provide a framework to guide in the planning and decision making process towards achieving Zero Waste. The Zero Waste goal will only be possible to accomplish if sufficient funding, staffing and authority are provided and recommended policies are adopted. Objective 1 Reduce - Work with Residents and Businesses to Eliminate Waste Strategy 1: Expand educational and technical assistance programs 1. Encourage residents and businesses to eliminate wastes as a priority, on a voluntary basis. 2. Provide technical assistance to local businesses to adopt sustainable best business practices to minimize waste and avoid landfill and incineration (e.g., more waste audits, how-to guides, and periodic advice on how to implement recommendations of waste audits). 3. Promote and incentivize businesses to create and market products and services that utilize processes and means that reduce the volume and toxicity of waste and materials. Strategy 2 Promote Voluntary Take backs 1. Encourage retailers and their suppliers to take-back products and packaging that are currently difficult to reuse, recycle or compost. 2. Promote take-back programs. Objective 2 Reuse Develop Infrastructure beyond Recycling Strategy 1 Expand opportunities for reuse of used materials and products 1. Develop and present to citizens and businesses a list of the highest priority materials to be reused, such as used building materials, used plastic toys, textiles and leather, and arrange for each of these materials to be accepted in at least one drop-off location each. 2. Work with local reuse nonprofits and businesses to expand convenient drop off locations. Strategy 2 Work to preserve residential buildings that are still functional 1. Encourage adaptive reuse as a priority in building standards for residential construction. Objective 3 Offer Recycling and Composting Services to All Strategy 1 Expand Recycling Services 1. Develop and communicate to the public a list of the highest priority materials for recovery of those currently disposed to be added to local recycling programs (e.g., film plastics). Include materials on this list in at least one drop-off location each. 2. Maintain one or more recycling drop-off centers. 3. Support other regional recycling centers and businesses to help them expand and provide additional services needed. 4. Work with independent recyclers to help the commu nity recycle their waste. Strategy 2 Expand Composting Services 1. Develop composting collection program for discarded food and food-contaminated paper as the second highest priority for new services for both the residential and commercial sectors. Include composting programs on the list of highest priority materials for recovery and provide at least one drop-off location for these materials. 2. Help interested businesses to start food waste com posting pilot program. Objective 4 - Incentives and Support for Zero Waste Initiatives Strategy 1 Establish Rate-Based Incentives and Disincentives to Reduce Land filling 1. Seek ways to incentivize businesses to adopt Zero Waste goals and to develop Zero Waste plans. 2. An example of a possible progression from rate in centives to mandates is presented as follows: a. Stage 1 - In the first stage of this plan, create a progressive multi-stage rate structure tied to measurable material reduction goals to ensure that both residents and businesses that waste less pay less. b. Stage 2 - Beginning in stage two, implement first stage rate structure incentives, targeted at high priority waste materials to be reduced. Provide progress report both at mid-year and at year end. Evaluate mid-year progress and move to stage two rate structures if insufficient progress has been achieved. c. Stage 3 - Beginning in stage three, if progress meets operational reduction targets, then maintain rate structures. If not, then advance to higher stage rate structures for another six-month trial, reporting back, twice each year until stage 4. d. Stage 4 - If, by the end of stage 3, designated materials have not been decreased, following implementation of progressive rate structure and periodic reporting, then consider adopting bans or mandates with fines to require proper handling of those materials which have not been successfully reduced. 3. Develop and communicate to residents and businesses a list of the highest priority materials for recovery of those currently disposed, to eliminate from the waste stream in addition to materials already being reduced or recovered. Suggest viable alternatives to those materials and products and where to get them. Provide information and assistance as needed for implementation. Strategy 2 Adopt Business Investment Policies to Expand Services 1. Encourage the cost effective development and expansion of services to reduce, reuse, then recycle and compost for all materials. Establish minimum qualifications for service vendors to provide such services as appropriate to ensure public health and safety. Establish mandatory service vendor reporting requirements to accurately capture quantities and weights of diverted materials. 2. Implement policies that penalize the discharge of toxic materials into the environment. 3. Increase public and private collection and processing services on an open, competitive basis, and help develop new businesses that add value to materials recovered and minimize residues that require disposal. 4. Stimulate innovative services to be added by the private sector and nonprofit groups. Encourage different types of services to be provided for different types of businesses. 5. Develop new requirements for owners and managers of multi-family dwellings and multi-tenant commercial buildings that ensure that all tenants have reasonable access to services and premises-based facilities comparable to single-family dwellings and small businesses. 6. Utilize economic resources staff to promote expansion of services related to reduce, reuse, recycle, and compost. 7. Establish target for the full avoided disposal costs to be basis for evaluating economics of Zero Waste programs and policies Strategy 3 Educate and engage the community to support Zero Waste initiatives 1. Continue to develop and implement a public education and communications program concurrent with the design of new waste diversion programs. Develop new Zero Waste promotional materials. Promote positive Zero Waste buying power and behavior with promotional materials and website. 2. Continue to implement new education and outreach in advance of the implementation of any new programs to obtain the maximum support for new initiatives that will help in achieving Zero Waste goal. 3. Coordinate outreach programs for sustainability and pollution prevention with Zero Waste, waste prevention and recycling programs. 4. Implement community-based social marketing programs to more actively engage residents and businesses. 5. Work with industry groups to promote Sustainable Business and Green Business programs. 6. Recognize business and residential Zero Waste lead ers. Strategy 4 Develop Resource Recovery Park 1. Develop or help developing a Resource Recovery Park to provide location(s) for expansion of reuse, recycling and composting businesses. Objective 5 -Lead by Example and Advocate Zero Waste Strategy 1 Maintain a Public Advisory Review Body for Zero Waste Policy 1. Continue a Zero Waste Task Force or other advisory body at discretion of Council, made up of community representatives to serve for limited duration to review the staff prepared Zero Waste Operations Plan and advice the Council on its implementation of and changes to associated City Zero Waste policies. Strategy 2 Maintain Active State and Regional Profile on Zero Waste Public Policy 1. Work with State and Federal legislators and support other communities in the region to adopt similar Zero Waste goals and plans. Work with them where appropriate to remove and resolve mutual obstacles. 2. Undertake a coordinated effort with regional cooperation, to support state and national efforts to adopt: Extended producer responsibility; Deposit programs; funding of zero waste initiatives through statewide or regional landfill surcharges and product charges; Full cost accounting for waste disposal; Packaging levies (e.g., on plastic bags); Minimum recycled content standards for addi tional products; Design for the environment programs; Green procurement and green building guide lines for the public sector; National measuring, monitoring and reporting in achieving zero waste goals; and New mechanisms for financial assurance for post-post-closure liabilities for landfills. Strategy 3 Minimize long-term landfill liabilities 1. Ensure that the full capital and operating, closure, post-closure and post-post-closure costs are factored into current rates and financial assurances, particularly for private landfills. 2. Establish a target to reflect the benefits of avoiding these future liabilities as an avoided disposal cost. 3. Work actively with landfill contractor and regulators to increase mechanisms for financial assurance for landfill liabilities. Strategy 4 Provide Funding to Implement Zero Waste Plan 1. Create a Zero Waste fund to encourage local innovation and participation. Fund community Zero Waste initiatives with fees levied on the transport, transfer and disposal of wastes where feasible. 2. Leverage the investments of the private sector by adopting supportive policies and providing technical assistance and support letters for independent financing and/or grants. The more that nonprofits and private companies invest in expansion of reuse, recycling and composting programs, the less is needs to invest. 3. Identify and support proposals for state, federal and foundation grants and loans for businesses and service providers. Objective 6 - Update Waste Data and Develop Zero Waste Operations Plan Strategy 1 Update Waste Data 1. Proceed promptly with a Waste Composition Study to report updated data in categories and subcategories designed for programs targeted to reduce or recover those materials. Include analyses of different segments of the commercial and industrial sectors, and institutions (including restaurants, medical services, retail, offices, multi-family dwellings and government/schools). 2. The Waste Composition Study should clearly identify reusable materials and materials in the waste stream that are likely to be significant targets for programs to reduce or reuse such materials. 3. After the Waste Composition Study is completed, monitor measure and keep the community informed of progress and results. Provide annual reports on progress of all waste reduction initiatives. Highlight results of recent policy and program changes. Strategy 2 Develop Zero Waste Operations Plan (ZWOP) 1. Identify what type of facilities need to be developed by and for to meet the service needs identified in this Strategic Plan. 2. Evaluate whether facilities exist or will be built to meet needs by the private sector, or recommend what facilities the public sector will be required to build. Compare costs of capital-intensive approaches that could be built on more expensive land vs. more land-intensive lower cost approaches that exist or could be built on the outskirts (e.g., for composting facilities). 3. Evaluate the market value of reusable materials, recyclables and compostable material still being land filled. 4. Identify public or private programs necessary to reduce, reuse, recycle or compost the materials identified from the Waste Generation Study. 5. Design different programs for different sectors, including multi-tenant buildings (residential and commercial), downtown businesses, strip malls, restaurants and hospitality industry, and major industrial areas. Provide universal access to opportunities to reduce, reuse, then recycle and compost. 6. Evaluate long-range reliance on single-stream recycling services versus expanded source separated collection. 7. Identify candidate locations for other new public and private facilities that might be required, with a conceptual basis for how to pursue the development of those facilities. 8. Reduce potential releases from degrading landfill sites that has a growing stake in. 9. Recommend policies and incentives consistent with this Strategic Plan. 10. Estimate jobs expected to be created and financial benefits from implementing the Zero Waste Operations Plan. 11. Identify which financing tools might be most helpful to local businesses to expand services needed to achieve Zero Waste. 14. Determine what funding, staffing and authority will be needed for staff to implement a Zero Waste goal. 15. Establish targets and goals for the Operational Plan. 16. Establish criteria for implementing bans and mandates where voluntary efforts have not been effective in meeting Zero Waste. 5. Conclusion Sustainable development represents a commitment to advancing human well-being, with the added constraint that this development needs to take place within the ecological limits of the biosphere. Human economy depends on the planets natural capital that provides all ecological services and natural resources. As a result of population increase and economic development, humans have exerted a considerable impact on the earth and are facing a series of incompatibilities among the natural resources, environment, and economy, such as the dichotomy of population growth and depression of resources and environment deterioration. By understanding why human race need to reduce the amount of waste that all of us produce and dispose of, we can make a big difference to the scale of residual waste that needs to be treated. We (people) all need to make a concerted effort to think about the types of products we are buying, and consider whether they can be reused or recycled. Human interaction with the regenerative capacity must thus be managed carefully. Just as it is in our self-interest to track our financial assets carefully, it is equally important to track our ecological assets, which provide the ecological services that sustain human life and economic activity. On the other hand, Zero Waste has to be a design principle for the 21st Century that seeks to redesign the way resources and materials flow through society. Zero Waste requires eliminating subsidies for raw material extraction and waste disposal, and holding producers responsible for their products and packaging from cradle to cradle. The goal is to promote clean production, prevent pollution, and create communities in which all products are designed to be cycled safely back into the economy or environment. REFERENCES Š1Ë Cherubini, F., Bargigli, S., Ulgiati, S.: Life cycle assessment of urban waste management: Energy performances and environmental impacts, Waste Management 28, pp.25522564, 2008. sredinu, Zbornik Š2Ë Petrović, N., Petrović, B.: Uticaji proizvoda na radova XXXI životnu Simpozijuma o operacionim istraživanjima SYMOP-IS 2004, Rudarsko-geološki fakultet Univerziteta u Beogradu, Iriški Venac, Fruška gora, 2004. Š3Ë Petrović, N.: Merenje ekološke podobnosti proizvoda. Zbornik radova (editor dr Dragan Radojević, 86-82183-07-2) XXXIII Simpozijuma o operacionim istraživanjima SYM ISBN: OP-IS 2006, Institut Mihailo Pupin, Banja Koviljača, 2006. Š4Ë Petrović, N.: Environmental Managament for Business, Book of Abstracts of the International Conference Business and Globalization - KEEFP 2007, University St. Kliment Ohridski, Faculty of Economics - Prilep, Ohrid, Republic of Macedonia, 2007. Š5Ë UN Conference on the Human Environment. Draft Declaration on the Human Environment. United Nations Environment Programme; 1972. Annex I. http://www.unep.org. Š6Ë U.S. Environmental Protection Agency, Office of Solid Waste, Solid Waste Management and Greenhouse Gases: a Life-Cycle Assessment of Emissions and Sinks, May 2002, 2nd edition, EPA530-R-02-006, page ES-9. Š7Ë http://www.zwia.org/standards.html Š8Ë http://www.zerowaste.com Measuring Competitiveness as a Precondition of Economic Management UDC: 338:339.137.2(497.16)2007đ2010 ; 330.341.1(497.16) mr. Nikola Milović Faculty of Economics, Podgorica Since 2005, the World Economic Forum (WEF) has based its research on competitiveness in the Global Competitiveness Index (GCI), a comprehensive index that measures the microeconomic and macroeconomic foundations of national competitiveness. According to the WEF, competitiveness is defined as a set of institutions, policies and factors that determine the level of productivity of a country Š1Ë. The level of productivity, in contrast, establishes a sustainable level of prosperity that can be created by the economy. In other words, more competitive economies tend to be able to produce higher levels of income for their citizens. The level of productivity also determines the rate of return on investments into the economy. The rates of return on investments and the return on investments themselves are very complementary to achieving economic growth in the economy; more competitive economies are those whose growth is faster in the medium term compared to the long term. The concept of competitiveness thus involves both static and dynamic components. Although the productivity of the country clearly determines its ability to maintain its income levels, it is also one of the central determinants of returns on investments, which is one of the key factors when explaining the growth potential of the economy. The following paper presents a methodology of measuring competitiveness by the GCI index, statistical data related to the world economy, European Union countries, the countries that are in the process of accession to the EU, global advantages and disadvantages of the position of Montenegro and the countries of the region. 1. Introduction The position of individual countries as regards certain competitiveness aspects is an issue dealt with by numerous international organizations. Some of them, such as the WEF (World Econimic Forum), the GCI (Global Competitiveness Index) use the notion of competitiveness already in their name; other methodologies use terms such as economic freedom, progress in transition, or conditions of business doing. Our aim in this paper is not only to merely state the rankings of countries, but to offer these countries an opportunity to identify their weaknesses, overcome them, and consequently improve their competitiveness. Generally, the research conducted by international institutions can be classed into two categories. One includes the research done by the WEF and the IMD. In these analyses, the competitiveness level of an individual country is ranked in accordance with its economic system (social and international relations), the role of the state and the institutional environment. The other group of research (the World Bank and Heritage) are related to an important determinant of development regulations concerning business operations. The group of transition countries can also use the EBRD transition progress index. Common to all the quoted research is that in defining the position of a certain country, specially designed polls (the so-called soft data) are used in addition to the hard statistical indicators (hard data). The purpose of such polls is to measure those competitiveness factors that are not available from standard statistical data, primarilly concerning the performance and in dependence of judicature, the preference for innovation, the quality of firm management, corruption, and the extent of the state impact upon business doing in the particular country. These indicators are evidently, at least in the part concerned with poll surveys, the result of the perceptions the respondents have on the current conditions prevailing in the economy (soft data) Š2Ë. 2. Measuring competitiveness using gci methodology The GCI offers a weighted average of different components each of which reflects one aspect of a complex concept called competitiveness. All these components are grouped into 12 pillars which individually measure the competitiveness levels. The GCI is composed of 12 individual pillars (subindices) that can be classed into three categories: basic requirements, efficiency, and innovation. Each individual pillar explains one aspect of a complex concept known as competitiveness. The economy fonded on basic factors includes four pillars measuring individual indices: institutions, infrastructure, macroeconomic stability, health and primary education. In the economy founded on efficiency factors we observe 6 pillars or subindices: higher education and training, goods market efficiency, labour market efficiency, financial market efficiency, technological readiness and market size. The third category, the economy founded on innovation factors includes the last two pillars of global competitiveness: business sophistication and innovation. 3. Phases of development and weighted index According to the GCI, in the first phase of its development, economy is founded on the basic factors and the production is conducted on the basis of the factors such as insufficiently skilled labour force and natural resources. The companies compete on the basis of low prices which are a consequence of the primary product and goods manufacturing, with decreased productivity and low wages. Maintaining competitiveness in this development phase of economy depends on a good work of public and private institutions (1st pillar), well developed infrastructure (2nd pillar), stable macroeconomic environment (3rd pillar), and healthy and educated labour force (4th pillar). As wages rise together with the development of economy, the country moves to efficiency factors and the development phase based on them, and companies start manufacturing on higher productivity levels, the results being new and higher quality products. In this phase of development the competition lies in higher education and training (5th pillar), efficient goods market (6th pillar), efficiency of the labour market (7th pillar), efficient capital market (8th pillar), as well as the competence to implement current technologies (9th pillar). Finally, as economies move towards the phase characterised by innovation inclined factors, higher wages and standard of living are only possible on condition business doing is oriented towards manufacturing new and unique products. The competitiveness of firms in this phase is based on innovation (12th pillar), product manufacturing and development implementing the most up-to-date production processes (11th pillar). The concept of the phases in the development is integrated into the Index, with most attention paid to those pillars relevant for the country and its current level od development. Similarly, although there are 12 pillars for each individual country, the importance of individual pillars depends on the phase the country is in. Finally, all the pillars are structured into three subindices, each of special importance for a particular phase of development. The subindex of the basic development factors groups those pillars that are most critical for the country in the phase of the basic factors founded development. The efficiency subindex includes those pillars that are necessary for the country in the development phase characterised by the efficiency factors. The innovation and business sophistication subindex includes the pillars observed in the final phase of development based on innovation factors. The specific nature of weighting and of importance assigned to each of the subindices within different development phases is presented in Table 1. Table 1. Weighting three subindices within different phases of development Subindex A: Basic conditions B: Efficiency C: Inovations Economy established on basic factors % Economy established on efficiency factors% Economy established on innovation factors %  In order that it should be specified which phase of development a country is, the GCI measuring methodology has been extended to include two more criteria. One, the per capita GDP indicator is used as a widely available fact, given that the income level is not available for all the countries covered by the research. The other, the indicator of the level of economy established on the basic factors, is measured by the share of the exports of primary products in the total exports and assumes the countries which export more that 70% of primary products in the total amount of exports (measured by a five-year average) to be basic factor driven economies to a large degree. Table 2 presents the per capita GDP level used to define the development phase the country is in. Source: WEF Table 2. Income level used to define the country development phase Development stage Phase 1: Economy established on basic factors Transition from phase 1 to phase 2 Phase 2: Economy established on efficiency factors Transition from phase 2 to pha se 3 Phase 3: Economy established on innovation factors GDP per capita (US$) < 2.000 2.000-3.000 3.000-9.000 9.000-17.000 > 17.000 Source: WEF The countries in between the quoted development phases are considered to be in the transition process. Their development process is characterised by a slow trensition from one phase to another. The knowledge of the development phase a particular country is in and the comparison of the countries, emphasises the development factors of crucial importance for the transition to a higher level of development. Each of the countries included in the study is ranked as related to other countries on a 1-7 scale, where 7 is a maximum score or rank that places the country among developed countries by a particular subindex or pillar. the world. As many as 5 countries out of the top 10 countries are the EU member countries. The success of the countries and their position on the competitiveness scale is based on: a) greater openness of the market; b) macroeconomic stability; c) removal of barriers to competition; d) improved business environment. The position of Montenegro and the survey of the three previous years stressed a steady improvement of the competitiveness level and the position on the scale. Table 4 presents the values in the ranking for each pillar and the position of Montenegro. Table 3. Global competitiveness, top 10, 2007-2009. Year 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. USA Switzerland Denmark Sweden Germany Finland Singapore Japan Great Britain Netherlands USA Switzerland USA Denmark Sweden Singapore Finland Germany Netherlands Japan Japan Canada Singapore Sweden Denmark Finland Germany Switzerland Canada Netherlands Source: WEF 4. Global competitiveness report the position of Montenegro According to the World Economic Forum statistics for the year 2007 and the global competitiveness index computed, this is the first time Montenegro entered the the official ranking list together with 131 countries in the world. Table 3 presents competitiveness worldwide from the aspect of global competitiveness for 10 best countries. In 2009, Switzerland overtook the U.S.A. and climbed to the first position. Due to the consequences of the global crisis, Denmark, positioned 3rd in 2007, fell to position 5 in 2009. Out of 131 countries on the list, Sweden, Finland, Germany and the Netherlands occupy positions number 4, 6, 7, and 10, respectively. Great Britain was not in the top 10 group in 2008 and 2009. The above table shows that certain EU countries are positioned among the top most competitive countries in According to the 2009 WEF Report, Montenegro climbed to position 62 measured by the Global Competitiveness Index, its total rate being 4.2. Compared to 2007, when it was first ranked, Montenegro improved its position by 20 positions. The analysis, as do others too, proves that Montenegro achieved best scores in the financial market efficiency where it is positioned 17th. Also, in view of macroeconomic stability, Montenegro occupied the 33rd and 35th positions in 2007 and 2008, respectively. The global crisis consequences affected its 2009 score; it is considerably lower, i.e., Montenegro is ranked 70th out of 134 countries. The lowest rates were obtained for the market size (124th position), infrastructure (93rd position), and business sophistication (80th position) criteria. The data in Table 4 show that Montenegro is wellranked according to a majority of subindices. The biggest move within the structure of individual pillars of competitiveness was a result of improvements in all three individual subindices. Similarly, the high position is mirrored in the aspects concerned with institutions, where Montenegro is ranked high, 52nd, an improvement compared to 2007 when it occupied the 78th position. The goods market efficiency and better rates of this pillar of competitiveness also resulted in an improvement of its position, from position 91 to position 58 in 2009. Measuring competitiveness using the GCI and the scope of economy of Montenegro on the WEF list suggests further guidelines in managing economy. The creators of macroeconomic deveopment policy will find the subindices within the competitiveness pillars to be a valuable indicator of the achieved development level Š3Ë. Table 4. Global competitiveness report 2007-2009, Montenegro 2007/131  Global competitiveness index Subindex A: Basic requirements Pillar 1: Institutions Pillar 2: Infrastructure Pillar 3: Macroeconomic stability Pillar 4: Health care and primary education Subindex B: Efficiency Pillar 5: Higher education and training Pillar 6: Goods market effi ciency Pillar 7: Labour market efficiency Pillar 8: Financial market efficiency Pillar 9: Technological readiness Pillar 10: Market size Subindex C: Inovation Pillar 11: Business sophistication Pillar 12: Innovation The knowledge of the development phases of certain countries and making comparisons with them the impact factors for the move to a higher level of development are stressed. The 2009 amount of GDP and the range of per capita $3,000-$9,000 proves that Montenegro is in phase 2, marked as an efficiency factor based development level of the country. All the Balkan countries save Croatia are in this phase of development. 5. Wef lisbon review The Lisbom process has been a ten-year attempt of the European Union to achieve the goals set in 2000. The European leaders met in Lisbon in March, 2000 and adopted the Lisbon Strategy stating that by 2010 the European Union is to become the most competitive, most dynamic, knowledge-based economy in the world, capable of sustainable growth with a larger number of quality jobs and a higher level of cohesion. The current economic crisis has clearly stressed the importance of competition-supported economy, sound and able to provide a solution to the market shocks and reduce the impect of negative effects of economic trends. The objective of the Lisbon Strategy is to increase the productivity and competitiveness of the European economy that will be supported by the economic policies and previously established goals. This means building an information based society, establishment of a European field of research and development, development of a quality business environment, completion of a single market, establishment and integration of financial markets, building a knowledge-based society, a larger number of quality jobs, social cohesion, as well as a sustainable growth. The WEF Report is the fifth and the last survey assess 2007/7 3.91 4.47 3.69 2.79 5.40 6.00 3.60 3.71 3.89 4.42 4.75 3.53 1.31 3.18 3.68 2.69 2008/134 2008/7 2009/134 2009/7  4.1 4.5 4.1 2.7 5.5 5.8 3.9 4.2 4.2 4.5 5.0 4.0 1.9 3.3 3.7 3.0  4.2 4.4 4.3 3.0 4.6 5.8 4.1 4.2 4.3 4.5 5.0 4.1 2.2 3.6 3.8 3.3 Source: WEF ing the progress achieved in pursuing the Lisbon Strategy goals in economic and structural reforms. The study published in 2010 includes three types of comparisons. In addition to assessing the achievement of 27 EU member-countries, the study measures the competitiveness of the EU countries as compared to the most competitive countries in the world and Asia, as well as the competitiveness of the candidate countries for accession to the European Union. The last decade was rather turbulent for the European Union; the number of member-countries has almost been doubled, from 15 to 27, followed by a failure in adopting the European Constitution in 2005. The process of European political uniting was finally completed by adopting and enforcing the Lisbon Treaty in December 2009. Due to these circumstances, Europe failed to achieve all the stated goals, therefore it extended its own strategy and in March 2010 it presented the Europe 2020 a Strategy for smart, sustainable and inclusive growth Š4Ë. 6. Areas of lisbon strategy analysis The Lisbon Report Š5Ë explained further in this report assumes several dimensions of tracking the progress towards achieving the goals set in 2000. The division of the Lisbon Strategy into eight different areas rasulted from the European officials understanding of the ways to build Europe into the worlds most competitive economy. The eight areas that are presented are as follows: 1. Building an information society for everyone. This area measures the impact of information technologies upon the knowledge dissemination and industry pro ductivity improvement. The information-based society is a precondition for the development of all the sectors and all the areas in the society. The countries that implement developed information technologies and keep up with the latest achievements in the field witness the improvement in the productivity of all their industry sectors. Such an importance of these technologies for the development of economy requires that all the economic entities, the government, the companies and individual citizens be included into their implementation and valuation. The 2000 Lisbon Strategy pointed out that both economic entities and citizens should be granted access to inexpensive information infrastructure of world class that offers a wide range of services. The index under consideration in this area includes the following variables: the ICT priority granted by the government, the ICT penetration (the Internet, mobile phones), the use of the Internet by the businesses, the availability of the Internet in schools. 2. Development of a European area of innovation, resarch and development. Innovation is important for economic development. The challenge in this area is even greater for technologically advanced countries in this field. In order that they ensure that innovation be effective, they must develop an institutional environment that supports the innovation development. the Lisbon Strategy defines and stresses the importance of this area. It is a common attitude that private investments into research should be increased, that research and development centres should be established and that improved communication and cooperation between the state and the private investors in this area be ensured. A rather demanding goal set in 2000 and amended in the strategy for 2020 is the expenditure and allocation of 3% og the GDP to research and development. Similarly, the quality of research institutions, the level of relationships between universities and industry, the number of per capita registered patents, as well as the intellectual property right protection and innovation stimulation through state grants are all the focus of attention of this area. 3. Liberalization: Setting up common market. State aid and Competition policy. The protection of the free flow of goods, services, capital and labour within the EU common market is of paramount importance for the further work on economic uniting of the European continent. This area is viewed via the free flow of goods and services which is essential for the competitiveness of the European industry. A certain progress in the common market building has been achieved, however, some sections of the market of goods and especially services as well as of certain industries are still controlled by the state. Lowering the barriers in service delivery is followed by the setting a clause of national treatment for certain services. The introduction of the Services Directive in December 2006 and setting its time line for implementation to 2009 has not been completed yet. Securing equal conditions for domestic and foreign investors and enforcing an appropriate competition policy are the key elements of the market liberalization. Hence the Council recognized the importance of the reduction of the state aid for the domestic industries and emphasized common interests such as employment, regional development, collaboration in environment protection and the like. The home market is marked as a crown jewel of the European policy and its further improvement is a firm basis for achieving the best competitive position in the world. 4. Building industry network: Telecommunications, Services and Transport. The Lisbon Strategy measures oriented towards a better functioning of the market are concerned with the liberalization and building of industry network. These industries, as part of services, are not fully spread over the common market yet. Telecommunications and airline markets are almost entirely liberalized. After a 15-year long process of opening the postal service market, the third Postal Directive adopted in February 2008 ruled that the member states shall abandon monopoly on postal services by the year 2010, or by 2012, for some countries. A successful implementation of the Directive is essential for the efficiency achievement in this sector. The single electrical energy market, improved through the Directive adopted in 2004 and 2007 is meant to ensure a quality, steady and efficient energy supply for the EU consumers. The free choice of an electric power supplier will allow for higher quality services as well as for an increase in the overall competitiveness of the whole system. The observations of this area are focused upon two dimensions of industry infrastructure: telecommunications and transportation. The infrastructure in the transport sector is crucial for the reduction of costs and the improvement of production efficiency. 5. Building efficient and integrated financial market. The recent events on the financial market that eventually caused a financial crisis have resulted into considerable attention being paid to this sector. The financial sector has a large impact upon the dynamics of the economy itself. An efficient financial sector affects the flow of capital and investments from banks, to the securities market, to all other types of securities markets. An integrated and legally regulated capital market will allow for a more appropriate resource allocation on the EU level, as well for easier investing and lower operational costs. A stress on a common currency, Euro, and a monetary union on the EU level ensures the stability and improvement of the financial sector operations. The strength and stability of this union will be of crucial importance for the further development of all the markets on the European Union level. 6. Building business environment: Settung up a business/legal framework. The improvement of the growth and employment prospects on the EU level means the building of a quality and efficient business environment. In order that this goal be achieved on the Lisbon strategy level, it is necessary that adequate legal regulations should be adopted, ones that allow for the development of business and an increase in the overall economic activity. This strategy defines the entrepreneurship incentives, removing the barriers to setting up businesses as well as tax reduction in this field. A less expensive and easier start up of a business is the ultimate goal of the legal regulations, ensuring a higher utility within the economy. The EU has started building a business environment that allows for the start-up of businesses to be completed within a week time and at one single counter, in a majority of countries. The reduction of all kinds of costs and time saving are very important in achieving a more favourable competitive position of some countries and of the EU in general. 7. Improving social inclusion. Creating new jobs and higher employment rate make one of the Lisbon Strategy goals. The increase in employment rate to a level of 70% by 2010, as well as a demanding goal that this rate be raised to 75% by 2020 is another. According to the official Eurostat, the average employment rate on the EU level towards the end of 2008 amounted to 65.9%. The EU will have to increase its employment rate in order that it should obtain sustainability in inflows for pension plan expenditures. In order that employment be increased, attention should be paid to highly qualified labour force willing to re-qualify in an increasingly demanding business environment. Currently, attention is focused on the achievement of the Danish model meant to increase the flexibility of labour market by payments for the unemployed and investments into re-qualifications. Of vital importance here are facilitating the access of women and the elderly to new employment and training services. Finally, modernization of welfare programmes, poverty reduction and the reduction of the exclusion of certain groups of society are a path to an incresed social inclusion and cohesion. 8. Improving sustainable development. Ensuring sustainable growth and development is a long-term Lisbon objective, added to the Lisbon Strategy in Stockholm in March 2001, and becoming highly important in the new 2020 European Strategy. Attention is focused upon the achieved living standard by which a country has a favourable impact upon future generations. Similarly, it is an opportunity that future generations should enjoy the same or higher level of development in comparison to the generations today. Special emphasis is put on: climate changes, traffic, public health and natural resources. Such a development means friendly technologies, ones that do not pollute the environment to a large extent, in the energy and in the transportation sectors. Efforts made to achieve sustainable development are linked to both the local and the European levels Š6Ë. The index calculating this area is related to the design and implementation of environmental protection laws, the ratification of world contracts in this area, as well as the real quality of environment. 7. Lisbon review of Montenegro position, 2008-2010 Table 5 presents the positions of the candidate countries, the prospective candidates for the EU membership and the East-European countries for the 2008-2010 period. The progress of prospective candidates for the EU membership is evident, which proves the quality and the scope of positive changes in the economies that wish to be part of the EU. Table 5. Measuring progress of prospective candidates, 2008-2010 Croatia Montenegro Azerbaian Turkey Russia Kazakhstan Ukraine Georgia Macedonia, FYR Moldavia Serbia Tajikistan Armenia Kyrgystan Albania B&H EU 27 Position Index 4.10 3.96 3.88 3.82 3.82 3.70 3.69 3.66 3.53 3.50 3.44 3.35 3.29 3.23 3.12 3.12 4.73 Montenegro Croatia Azerbaian Turkey Macedonia, FYR Georgia Russia Kazakhstan Ukraine Serbia Armenia Albania Tajikistan Kyirgystan B&H EU 27 Position Index 4.19 4.18 4.02 3.85 3.79 3.78 3.75 3.67 3.62 3.51 3.50 3.47 3.38 3.20 3.07 4.81 F E W : e c r u o S Among the eleven East-European countries non-members of the EU, with the mark of 4.19, Montenegro is closest to achieving the goals of the Lisbon Strategy of economic and structural reforms. Š7Ë. According to the 2010 Lisbon Review, Montenegro is better than Croatia, and being positioned at the top, has become the top reformer among the countries non-members of the EU. Also, Montenegro has overtaken the five lowest ranked member-countries of the EU Greece, Poland, Italy, Romania, and Bulgaria. Croatia is positioned second on the list, with a mark of 4.18 and is ranked equal to Greece; Azerbaian overtook Romania and Bulgaria, while Turkey and Macedonia are positioned higher than Bulgaria. The most successful nonmembers and prospective candidates have achieved higher marks compared to the total number of present member-countries. Montenegro is best in the area of financial services and social inclusion, with marks higher than the average marks of the 12 new members of the EU. In these areas its marks amount to 4.74 and 4.28, respectively. The country is also ranked high in the areas of sustainable growth, 3.9 (second position, below Croatia), in network industry, 4.6. In the area of liberalization, Montenegro is on the second position, with a mark of 4.34, and in business environment area it occupies the sixth position, with the mark of 4.32. The two bottom positions on the list of 11 East-European countries belong to Albania and Bosnia and Herzegovina, with marks 3.47 and 3.07, respectively. 8. Conclusion On the basis of the facts presented a following conclusion can be drawn: the World Economic Forum based its research into the competitiveness on the Global Competitiveness Index (GCI), a comprehensive index used to measure microeconomic and macroeconomic foundations of a national competitiveness. According to the WEF, competitiveness is defined as a set of institutions, policies and factors that determine the productivity level of a country. The GCI is composed of 12 individual pillars (subindices) that can be classed into three categories: basic requirements, efficiency, and innovation. Each individual pillar describes one aspect of a complex concept called competitiveness. The developmentphase concept is integrated into the Index, emphasizing the pillars relevant for the country and its current level of development. Similarly, although we have all the 12 pillars for each country individually, the importance of some of them depends on the phase the country is in. Each country covered by the research is ranked in relation to other countries: on a 1-7 scale, where 7 is the maximum score, i.e., the rank that places the respective country among the developed countries by the individual subindex or pillar. According to the 2009 WEF Report, Montenegro ranks 62nd out of 134 countries, measured by the Global Competitiveness index, with a total score of 4.2 on the 1-7 scale. The score is improved by 20 positions, compared to year 2007. Montenegro scored highest marks in the area of financial market efficiency, where it is ranked the 17th country in the world. In view of the Institutions pillar, Montenegro is ranked 52nd, a progress compared to year 2007, when it occupied the 78th position. Similarly, the goods market efficiency and higher marks of the third pillar of competitiveness raised the country from position 91 to position 58 in 2009. The consequences of the global crisis affected the Macroeconomic stability pillar in 2009, placing the country on position 70 out of 134 countries. The lowest scores are found in the areas of market size (position 124), infrastructure (position 93), business sophistication (position 80). the results in Measuring the competitiveness enables the economists to identify the basic problems in development as well as to make suggestions to the creators of macroeconomic policy as to how they should act in certain situations. Š8Ë The GCI and the World Economic Forum Lisbon Review are methodologically and practically good research works with an impact upon the quality of management as well as upon the economic progress of certain countries. REFERENCE Š1Ë The Global Competitiveness Report © 2009 World Economic Forum2009-2010. Š2Ë Lovrinčević @eljko; Mikulić Davor; Rajh Edo, Usporedba pokazatelja konkurentnosti hrvatskog gospodarstva - objektivni statistički pokazatelji i subjektivne percpecije, Zagreb, Mate d.o.o. , 2007. Š3Ë Cvetanović S., \urovic G., , Privredni razvoj, Ekonomski fakultet Podgorica, Podgorica. 1996. Š4Ë Strategija Evropa 2020 godine,Evropska komisija, Brisel, 3.3.2010 COM (2010) 2020. Š5Ë World Economic Forum, The Lisbon Review, 2010. Š6Ë Dr. \urica A. , , Međunarodni ekonomski odnosi , Pigmalion, Novi Sad. 2003 Š7Ë \urovic G., , Crna Gora : od spoljnotrgovinske ka fakultet evropskoj Podgorica,study material, Podgorica. 2009. Ekonomski uniji, Š8Ë Ekonomist, vol.44, Evropske integracije kako dalje?, Savez ekonomista Srbije i Crne Gore, Beograd. 2006. New Paradigm of Management: the Commitment to Innovation and Sustainable Competitive Advantage UDC: 005.32:331.101.3 ; 005.96 Valentina Malešević Information and Communication College, Belgrade The environment in which companies operate in the 21st century requires management to respond to the challenges relating to entirely new paradigms of management processes, primarily to employees in the direction of maintaining strategic performance and competitive advantage. The main objective of this paper is to highlight the challenge that is before the management, which is that it necessarily has to create such a working environment that encourages each employee to make their best, and be committed to and fully engaged. The paper analyzes the necessity of innovation management system, the current state of engagement of employees, commitment of employees as a route to continuous innovation and guidelines for management towards employee commitment. 1. Introduction The environment in which companies do business in the 21st century is characterised by a host of challenges and uncertainty. The new era triggered a large number of issues and a necessity that paradigms be changed in the process of company management. With an accellerating rhythm of changes, an increasing number of companies are found on the wrong side of the change curve, and a competitive advantage is likely to expire even much faster1. Overtaking the competition is not so much a consequence of market power as it is a result of skillful negotiations. From the traditional approach to performing an obligation towards the community, the corporate responsibility embraces a new approach of delivery as a strategy. The world of digitalization is increasingly characterised by the need that information and ideas be free, hence the firms creating and selling intellectual work encounter certain problems. The Internet allowed for the consumers to control the situation more than ever before2. They obtain perfect information, therefore there is less and less space for average quality products and services. A new truth in the economic environment is also reflected in the fact that a new company is possible to improve in a much shorter time as life cycles of strategies become shorter and technological advantage is of a short date. The power of outsourcing and that of a global approach to the Internet are greater and greater, and extremely low prices of communications and the globalization open the doors to a large number of new competitors who offer remarkably low prices. Such new environment requires new organizational and managerial competences. In order to survive, the companies have to become strategically adaptive and operationally more efficient than ever before. The managemnt has to: encourage innovation, build new tools for an efficient capital allocation, cherish and improve the intangible assets in a completely new way, encourage, use and reward the creativity and innovativeness of the employees. All the above quoted point to the importance and power of the people who work, from the top management to the basic line of the employees. We notice a great power of resources that is increasingly underlined today, and this is an engaged, committed, labour force. The management, therefore, has to change the paradigm of relationships towards the resource that is called the employee. From the intellectual feudalism paradigm: why is it that whenever I want to employ a pair of hands, I get a brain alongside3 it changes to I want to encourage the spirit of enterprise, creativity, and innovativeness in every man. The advantages of the new paradigm of relations to the employees are embraced by many successful companies as their sustainable competitive advantage that is hard to copy. 2. Management innovation as necessity On the basis of observation of significant changes that have taken place on the technology, life style and geopolitical fields in the last fifty years a conclusion can be drawn that management technology develops at a snails pace Š1, p.34Ë. The majority of the todays managemnt patterns are somewhat different from the ones 1 Whether we talk abour airlines, generally known trade marks, tv networks, pharmaceutical companies, car manufacturers. 2 In the past, the customer loyalty used to result from ample reasearc costs and limited information so the companies often profited from the customers ignorance. 3 A well known Henry Fords sentence used to illustrate that in the early twentieth century the plain workers intelligence was belittled. Unfortunately, some managers today can still be identified with that managerial dogma about the resource that is not timely employed and encouraged. prevailing in the previous generations, while the environment has suffered enormous changes. The hierarchy and bureucracy are still the dominant pillars. The top managers, as most intelligent and most qualified, are expected to act in accordance with the directors decisions. The lower-level managers are still appointed by the higher-level managers. The strategy is still defined by the most important people in the company. Everything is still besed on the Taylors scientific principles of modern management at the beginning of the last century. The above quoted opens the issue of the necessity of innovating the management paradigm. Because, if the Taylors management principles were revolutionary then, and if Henry Fayol defined management as an activity of planning, organization, conducting, motivating, and control, which the 21st century managemnt could hardly extend, then todays business environment urges that, one hundred years later, some real innovations have to be introduced. Anything they could significantly change the todgays managemnt practice for the purpose of business efficiency and effectiveness and competitive advantage sustainability can be defined as innovation. The management innovation includes the change in the organizational structures and roles that create values. The companies consist of business units, departments, work groups, relations with suppliers, partners and major customers. The new method of linking these groups may be considered an innovation of management Š1, p.20Ë. Major advances in the management practice often lead to important changes that make it difficult to competition to respond to. The advantages of systemic innovation are reflected in the network of individual innovations that permeate numerous management processes, which is rather hard to immitate. Namely, even a superficial insight into a competition management practice has a limited value if anybody tries to copy it4. Innovation, therefore, is a new competitive advantage, however, it has to stem from a managerial innovation system. Its importance is greatest in the hierarchy of all the effective innovations since it results into a decisive and long-term advantage. For example: operational innovation: IT infrastructure, outsourcing5 and offshoring can still be benchmarked; product innovation: things can be imitated immediately; strategy innovation: products-brands at low prices, low-cost airlines that spread at highest speed or are benchmarked. The management information has a unique capacity that is difficult to imitate, because it is as if you should change your religion. The majority of directors find it easier to recognize the merits of the business model that brings a general tumult than do away with the basic principles of fundamental attitudes on managemnt Š1,p.34Ë The modern environment is characterised by one important feature: an uncontrolled accelerating rate of change. Thus the balance between the promising situations and the threats for any organization depend on its ability to adjust. This normally raises a question of: if the environment changes fast and without control, which speed do the organizations change at? The answer is, of cource, well known and negative. Therefore it is necessary that organizations be created that are capable of permanent renewal, that do not bring any shocks, since any late adjustment costs dearly, sometimes too dearly6. Excessive investment into what is settled, known in relation to what could become if change is implemented is the reason that many a company risks its future7. Investment into what could be has become the only path that leads to survival and prosperity in a world of ruthless competition. Many companies that introduced innovation, implemented the blue ocean strategy Š3, p.17Ë and made a turnround in their business operations did so in that they took the advantage of the first move in one of the three dimensions: they have the concept, they have the customer and/or they have specific skills Š2, p.229Ë The strategic renewal, however, usually starts with an attempt to improve that initial advantage. In the long run, the continual success becomes a matter of entering a completely new cycle of advantages. Successful companies have to create strategic spirals in which the end of one cycle of advantages marks the beginning of another, new one Š2, p.229Ë. All the above quoted suggests that three major challenges the company managers encounter in this new century Š1, p. 41Ë are as follows: 1. a dramatic acceleration of strategic renewal in both large and small organizations; 2. achieving a situation in which innovation is a daily job of all people; and 3. creating an especially favourable work milieu that motivates every employee to do their best. 4 It would be as if you imagined to weave a Persian rug from a few threads of silkŠ1, p.31Ë 5 Synergy is not in any longer, outsourcing is. The managers used to believe that 2+2=5. Now, 5+2=7, since the more subsidiary operations you do outside the firm, the more value you get. The new model settles gradually. It is estimated that from 1998-2000 a number of companies that outsource production trippled. Š2, p. 221Ë 6 IBM, Apple, Nissan, Kodak, Sony, General Motors ... experience 7 The management is often more prone to risk in order to avoid losses instead to risk in order to earn profits. Special ettention in this article is paid to the challenge of creating a highly favourable work milieu that motivates every employee to do their best, that is, to be defined as a committed and engaged worker. 3. Employee committment is a path to innovation In the times of the domination of the markets that feed on information and grow thanks to the information, organizations necessarily feed on ideas. Innovation is not created by markets, it is created by proactive companies that consider succes a maximum creation of value by satisfying real customers needs in an innovative manner Š2, p. 221Ë. Such companies have created a work milieu that motivates an increasing number of employees to earn a status of the committed, and consequently innovative workers. Such a paradigm of relations to the employees is an innovation of a systemic character that leads towards modern competitiveness and the adaptation capability. We therefore deal with two aspects of perception of the process achieving innovativeness that is a precondition of modern operations on the market. One aspect are the employees and their competences, skills, qualifications and the value system, whereas the other refers to employers and their readiness to change the pattern of valuating the employees as an important resource of innovation resulting from committment. 3.1. The perception of employee committment The average employers perception today can be described as follows: they seek for the methods and opportunities to ensure growth or at least survival, and consider the payroll to be an enormous expenditure, perhaps the largest of all. There is, however, a significant potential that failed to be rightly articulated for the purpose of minimizing the negative and maximizing the positive effects. These are the aspects of perception of the engaged employees as the source of improving the business performance, who in the long run achieve larger incomes and larger profits, and besides, they provide innovation support, a competitive advantage and a strategic sustainability. Where does the importance of this perception of the employees who are the resource for improving business performancelie? The importance lies, A. Schveyer Š4, p.2Ë mainatins, in the very identification of a vast potential of the committed and engaged employee, as opposed to a disengaged or a non-engaged employee. The traits of the above mentioned employees are described in Table 1. Every manager would appreciate it if engaged employees were dominant in the structure of the employees, and if others are as small a minority as possible (or non-existant at all). The principles and processes of the present, modern management are characterised by certain constraints reflected in a sort of disregard for fostering the competences, originality, courage and enthusiasm in the employees. On the contrary, much importance is attached to discipline, punctuality, economising, common sense and order, i.e., to formal excellence. The result is that a large number of organizations operate below their real potentials Š1, p.57Ë. Fully engaged Non-engaged Disengaged ready and able to contribute to the companys success; high level of discretional investment in the form of additional work and energy; prospective innovators; rarely absent from work; often used as synonym for motivated and loyal worker; adopt companys goals as their own and make best efforts to achieve them; emotionally committed to company, optimistic in viewing the companys future; important and valuable ambassadors of the company.    not goal-oriented; task oriented; assigned a task, they accomplish the task, switch off until the next task; feel their contribution is not valued and paying accordingly; no productive relationships with managers and collaborators; do not implement thir inventiveness and creativity; potential not used. absent, switched off even when at work; often pessimistic in changes and creation or adoption of new ideas; high level of absenteeism; spread negative effect including prospective customers, consumers; prone to undermining work atmosphere and have impact upon non-engaged workers; potential carriers of high risks that can seriously harm the company. Table 1. Employee types and characteristics according to engagement level Similarly, the management has to measure their nonengaged employees level and implement a new concept to transfer as many as possible of them into the level of committed and engaged employees. According to the 2008 research conducted by Towers Perrin, described in Table 2, the level of non-engaged is a serious threat to the survival and development of any organization. According to one study Š8Ë, the costs of demotivated labour force in the USA economy amounts to billions. On the other hand, Schveyer A. Š4Ë stresses, motivated, engaged employees work in a smarter way, they try to find the ways to improve performance. The effects of such committment are a higher level of sales, cost reduction, a higher quality and innovativeness of the products or services. They communicate, share information with their colleagues, they transfer ideas, suggestions and advice. All this results into better performance, satisfied and hence loyal customers and higher profits. The managements competence is reflected in the structure of the employees, from fully engaged to nonengaged workers. Sadly, many managers still ignore this fact about non-engaged workers, i.e., about unemployed potential and protect themselves with obsolete paradigms of leading their employees. On the other hand, there are other managers that build their competitive advantage on the very respect of this potential. Managers could have ignored this in the past, however, today, in the environment that primarily calls for adaptability and innovativeness, it is a serious risk for survival. Employee committment level Committed-engaged Non-engaged Disengaged % share 22% 66% 11% Table 2. Employee structure according to engagement level Source: according to 2008 Towers Perrin data Š4, p. 4Ë In recent literature on the human resources management there is a concept of adequate and inadequate human potentials. The concept of adequate human potentials refers to individuals within an organization that contribute significantly to achieving the goals of the management system, whereas the concept of inadequate human potential refers to those members of the organization who do not contribute to achieving the goals of the management system. For one reason or another, these individuals are not productive in their jobs Š5, p. 276Ë. In the companies where there is a human resource service or sector there is a whole procedure in the management process to find efficient ways to raise the employee motivation level that will in turn result in committment. This, however, may not be enough in some cases, as the paradigms of employee management remained the same. 3.2. Management towards committment Modern business environment has differentiated among highly important intangible values of the company that cannot be copied. One of these values is the Passion Creativity Enterprising spirit Knowledge and intellect Hard work Obedience They know no barriers and do not give up. Passion is a secret element that turns intention into achievement. Their passion is contagious and turns the initiative of one person into a mass movement. They are curious, uninhibited. They do not fear unknown, they are optimistic and enterprising. 35% 25% They look out for new challenges. They do not wait to be told to do something. They are always in search of new ways to increase the companys value. 20% They are talented, smart. They are willing to invest into the improvement of their skills and they generate good practice. Companies want to have them. 15% Hard-working employees are responsible, they never take an easier path. They are conscientious and well organized. They know how to pay attention to instructions and behave according to the rules. 5% 0% Table 3: Hierarchal succession of human potentials that contribute to competitive advantage Source: Authors own plot on the basis of the data Š1, p. 59Ë employee relation or the participation of engaged, committed workers in the structure of the total number of employees. Employees increasingly become a key that is called competitive advantage and development. The employees become the primary significant stakeholders of the company since really engaged employees make better ambassadors of the companys brand than any slogans or a promotion of the brand itself Š6, p.2Ë. Recruiting as many fully committed employees as possible is based on the condition that the managers themselves possess a high hierarchal level of competences and a new paradigm of relations towards employees. They are the primary drivers to the committment compared to all the others in the organization. This condition can be followed by the elements that make a necessary framework for the management towards committment: The challenge before the todays management is to create and modernize the system approach to encourage the employees to engage all their creative skills at work, on a daily basis. Human skills that contribute to the quality and success of competitiveness have their hierarchal succession and this is presented in Table 3. This hierarchy of potentials is important from the point of view of competitive advantage they create. It is easy today to find hard-working, expert and dutiful employees, however, they cannot create competitive advantage. It is the committed: passionate, creative, innovative, enterprising employees who create that value. In addition to these potentials, there are some types of skills that employers find important for success at the workplace. According to R. A. Noe Š7, p.22Ë, the employees born between 1965 and 1975 find unexpected rewards for achievements, opportunities to learn new things, praise, awards and time spent with the manager to be significant, while the employees born between 1925 and 1945, the so-called traditionalists attach importance to income and job security. All employees, however, value a number of key aspects, for example: they view their job as a means of self-realization, i.e., a way to employ their skills and potentials as best possible and satisfy their interests, as well as a means to live in a desired life-style. One report revealed that committment to a company is higher in those employees who are given opportunity to fully employ and develop their skills, take more responsibility at work, believe that the promotion system is fair and have a reliable manager who works to their best interests Š7, p.22Ë. From the management point of view, therefore, the above-quoted potentials and skills are highly important, and so is the knowledge of the value system of the employees that motivates them towards committment. In order that the potentials and skills should be implemented, engaged and in accord with a new value system of the employed, it is necessary that the management itself pass from the traditional pattern of the management system to one leading to a maximum activation of potentials, from the non-engaged to the engaged, committed, innovative. This is a condition without which competitive advantage and sustainable growth cannot be achieved. working milieu with all the necessary tools; favourable structure of intellectual and qualified employees; positive and incentive, innovative atmosphere; incentives through innovated programmes (carefully planned and still more carefully executed); continuous information flow and exceptional transparency; reduction of hierarchal levels and bureaucratic formality and extending of authority and responsibility. Given that the working milieu is equpped with all necessary tools, that the strategies are clear and the goals are innovated, as well as that there is a favourable intellectual and qualification structure, it is necessary that a positive and incentive, innovative atmosphere be created. This means that the management has an entirelly new pattern of relations with the employees, i.e., that it is capable of motivating and encouraging them towards creativity, enterprise and innovation. An incentive, innovative atmosphere and incentive programmes are significantly interrelated elements since human motivation is a complex category. It has been the subject matter of organizational studies for more than five decades and numerous theories have evolved. As an inward state due to which an individual acts in such a way as to achieve a goal, motivation is a continuous process. It explains why people behave in a way they do behave. The process of activating, directing and maintaining the employees activity towards achieving organizational goals therefore is a motivational process, based on a need, movement, reward and praise. Motivation is primarily perceived as internal and external. In case of internal motivation, the activity is a benefit in itself, whereas in case of external motivation, the benefit, the reward and the praise are expected to come after the activity has been accomplished. The better the manager understands the behaviour of the members of his organization, their system of values, or what activates them, the more influence he will have upon their behaviour and the more he will be able to adjust it to achieve the organizational goals Š5, p. 382Ë. Hence it is the responsibility of managers to create such an environment and incentives that will activate the employees towards a desired manner of behaviour, in accordance with the inward needs of an individual. A large number of companies spend a lot of time and enormous capital on research into their prospective customers, disregarding the need to study the motivation and behaviour of their employees. The management can make use of the traditional methods, such as wages, bonuses, trainings, professional improvements, promotion opportunities to motivate their employees, however, there are also incentive (stimulation) programmes which in addition to remuneration in merchandise or in money, in business meetings, or in conventions, include prize travels Š9, p. 438Ë. A typical ratio in a majority of companies is 70% in basic salary, plus 30% of various incentives Š10, p. 228Ë. The incentives in building new relationships with the employee, reflected in incentive schemes or programmes, include carefully planned and still more carefully conducted programmes that are in accordance with the system of values the employees cherish. These incentives are considered valuable only on condition they can really reflect the management feeling of value, trust and care for the committment engaged. According to the managements that implement them, the abovequoted incentive programmes really achieve such effects8. Similarly, the new management paradigm includes a necessity that management acts through important segments of committed relations with the employee in the process of creating a positive and innovative work atmosphere. It is necessary: that they spend a substantial amount of time with their employees9 in order that they should share in the daily efforts to achieve mutual goals, foster mutual trust and understand their employees system of value; that a favourable, incentive environment be created in which the individuals will improve their advantages, creativity and offer innovative solutions10; to define excellence as a challenge for each employee and reward it with praize, prestige, title, through modern incentive programmes11, and not only with money. to encourage innovation in all the lines of business operations. This means that perception and logic should not be a privilege of only a number of top managers or directors. Creativity and innovativeness have to be incited and valued on all levels; that principles be developed that will inspire and motivate people, develop ideas that will permeate their work places with positive and creative energy. This means that a vision should be developed and ensured for each member of the organization that activates the talented and the ambitious; that the employee is allowed to develop his/her identity and the system of value and yet satisfy his/her need to belong and to retain corporate identity, to create such a relationship with the employees that builds trust through expertise. As a leader, the manager has to trust people, otherwise, he cannot expect to get new ideas, creativity, and results. Trust is also built through the system authority and responsibility delegation. A task is usually delegated, while authority and responsibilities are not clearly defined, hence the path is lost that leads to committment in accomplishing goals and tasks. 3.3. Experience: from committment to innovation and competitive advantage The experience of some companies, presented by Gary Hamel Š1Ë, whose management system is based on new paradigms and principles, is a revolutionary innovation in the management system. This innovation is primarily reflected in incentives of committment that results into creativity, enterprising, innovativeness as paths to sustainable competitiveness. Among these companies are the Whole Foods and Google12. New business philosophies, new management paradigms in these companies resulted in a maximum committment among their employees. 8 The research carried out by the Incentive Research Federation (IRF) Š11Ë 2001 and Š12Ë 2007 have indicated a steady growth of the market and expenditures of the USA companies. According to this source, companies spent around $ 26.9 billion in 2001 and $ 46.08 billion in 2007 for the incentive programmes of prize travels. 9 Jeffrey Immelt, the General Electrics chairman and CEO, spends about 40% of his time with the employees; other members of management do that too Š2, p. 165Ë. 10 In the absence of such an environment chances are that even that small number of committed employees leave the company. The fact is that a majority of people do not leave the company, they leave the manager. 11 A large number of research in this field, among them Stolovich H. Š13Ë, P. R. Ricci and S. M. Holand, Š14Ë, Š15Ë, based on motivation theories and incentive programmes, are just about the implementation of this method in improving the committment towards achieving business goals. 12 According to the reviews of the Fortune magazine, they are top companies by a number of criteria, especially as companies in which the em ployees are highly satisfied. WHOLE FOODS COMPANY, Austin, Texas, USA Organic food chain of shops / 194 in total / more than 30,000 employed. Goals: 1.offer the customer an alternative in the form of total service and organic food via a new type of supermarkets that satisfy customers needs in new ways; 2. shopping should be less of an obligation, more a cullinary adventure. Incomes: earns approhimately $ 6 billion annually; the most profitable American retail food industry chain according to the profits rate. Average annual sales growth rate: 11% , almost three times as the average of the industry itself. Management system characteristics: 1. Radical decentralisation. Organizational hierarchy form : teams, team leaders, shop managers. The basic organizational unit is the team, not the shop. Team members command high authority, however, graet responsibilities. Each shop has about eight teams. The team is in charge of all key operational decisions: pricing, orders, employment and promotion. There is one condition: comply with strictly set standards. The team acts as a profit centre based on the employee productivity. Incentives defined in the form of rewards and bonuses. Rather a community than a hierarchy. 2. No secrets managerial philosophy. Information transparency. Everybody has access to information on the progress of other teams and other shops. Information available includes: daily sales in shops, team sales, product-related costs, profit of each shop, earnings and remunerations of all employees. 3. Minimum bureaucratic elements. Close realtionship between autonomy and responsibility reduces the need for bureaucratic control that inhibits motivation. 4. Mutual mission. Supports the feeling of mutual fate and faith in mutual mission. This is manifested in incentive rewards on the team level, in the financial data transparency, as well as in the limitations of the rewards to the top management. The succes is directly translated into rewards, bonuses, promotions. Profits are a result, not a game. Innovativeness of all employees in sustaining a competitive position. Management principles: love, community, autonomy, equality, transparency, and mission. A similar situation is found in the Google company with a specific type of operations. A managemenent model is implemented that is characterised by: negligible hierarchy, a thick network of lateral communication, the policy of awarding special rewards to people and teams that create extraordinary ideas, the approach by focusing of the whole team upon the product development and the company trust that encourages the employee to put the consumer first. This management model is also based on small work units, numerous experiments, a constructive feedback information from colleagues and on the mission of improving the world. Everybody in Google is considered to be of special importance, from the first line of employees to the top management, as they are all committed to innovation. 4. Conclusion The new circumstances of the 21st century in which the companies operate demand that the management system be innovated. New environment requires perma nent innovation to ensure stability, growth, and sustain competitive advantage. On the other hand, however, the today prevailing management system, based on orthodox principles displays its inefficiency. Still a high level of hierarchy and bureaucratic elements of management are reflected in an unfavourable structure of employees from the aspects of motivation and committment. The research and analyses clearly show that a large number of people are demotivated and non-engaged and thus represent a significant potential that is not employed. It is not only the unexploited potential; in the long term, and increasingly in the short term, too, this potential will lead to large losses and problems. The management has to pay due respect to this and implement an innovative approach to use it as its competitive and strategic advantage. The article offers one approach of a new paradigm of management towards committment. In addition to the work milieu with all the necessary modern tools and a favourable qualification and intellectual structure of employees, the new paradigm is based on: 1. a positive and incentive atmos phere; 2. innovated incentive rewards programmes in accordance with the employee system of value; 3. exceptional transparency of a continuous information flow; 4. reduced the hierarchy levels; 5. substitution of bureaucratic precision and formality by freedom of expressing enterprising spirit and creativity through a higher level of authority and responsibility. REFERENCE Š1Ë G. Hamel, B. Breen,. The Future of Management Harvard Business Press. 2007. Š2Ë J.Riderstrale, K.Nordstrom. Karaoke kapitalizam: menadžment za čovečanstvo. Plato, Beograd 2003. Š3Ë V. Čen Kim, R. Mobornj, Strategija plavog okeana. Asee Books, Novi Sad. 2007. Š4Ë Schveyer, A. The Economics of Engagement, Human Capital Institute, Enterprise Engagement Alliance, 2009. Š5Ë Certo, S.S., Certo, S.T., Moderni menadžment, Mate, Zagreb, 2008. Š6Ë T.Mamula, Upravljanje odnosima: zaposleni kao stejkholder. MASMI Beograd, 2010.www.masmi.rs, Š7Ë R.A. Noe, J.R.Hollenbeck, B. Gerhart, P.M:Wright. Menadžment ljudskih potencijala. Mate, Zagreb. 2006. Š8Ë C., Donaldson, Employee Disengagement Costs $31.5 billion. Human Resources Magazine, Australia, April. 2005 Š9Ë Anderson, E. R., Hear, F.,J., Bush, J. A., Profesionalni menadžment prodaje. Privredni pregled, Beograd, 2001. Š10Ë.G, Dessler, Osnovi menadžmenta ljudskih resur sa, Data Status Beograd, 2007. Š11Ë Incentive Federation,A study of the Incenitve Merchandise and Travel Marketplace. Westerfield, New Jersy, Incentive Federation, Inc.; 2001. Š12Ë Incentive Federation, , A study of the Incenitve Merchandise and Travel Marketplace, Westerfield, New Jersy, Incentive Federation, Inc. 2007. Š13Ë Stolovitch, H., Incentives, motivation and workplace performance. Research and best practices. New York SITE Foundation, 2002. Š14Ë Peter.R. Ricci and Stephen M. Holland, Incentive travel: recreation as a motivational medium, Tourism management, Elsevier, 1992., Š15Ë The Recognitional Council Group, The Time for Employee Recognition and Rewards Programs Is Now. Incentive Marketing Association. 2009. Conceptual Basis of Policy of Competitiveness under the Conditions of the Slovak Economics UDC: 338.22 (437.6) ; 339.137.2 Jaroslava Hečková1 Alexandra Chapčáková2 Ivana Butoracová [indlerová3 1Fakulta manažmentu Prešovskej univerzity, Slovakia, e-mail: jheckova¿yahoo.com; 2Faculty of Management University of Presov, Slovakia, e-mail: chapcakova¿yahoo.com; 3Faculty of Management, University of Presov, Slovakia, e-mail: ivkasindleryova¿yahoo.com The paper is devoted to justification of legitimacy of creation and application of policy of competitiveness in comparison with industrial policy and taking the real key factors of competitiveness, preferences and instruments of competitiveness policy into account it defines the conceptual basis of policy of competitiveness appropriate to the conditions of the Slovak economics. Introduction The problems of competitiveness are a multidimensional phenomenon, highlighting the importance of mechanism of application of a product on global market and, at the same time, the necessity of improvement of offer side of economics Š4Ë. If we define the competitiveness as the ability of economics to export goods and services with the aim to ensure external economic balance at concurrent ensuring of continuous growth of per capita income, sufficient rate of utilization of production factors while respecting social and environmental aims, or the ability of the country (or undertakings operating within) to produce relatively more wealth than competitors on world markets, always the same conclusion will result from these definitions Š7Ë. There is a need to assign a decisive task not only to business undertaking level in generation of competitive advantage Š2Ë, but also to active macro policy in creation of macro-environment stimulating an increase of effectiveness of relevant real sources of competitiveness. The economic policy in economically advanced economics focuses predominantly to stabilization of macroeconomic development as one from necessary conditions of growth of competitiveness of economics Š8Ë. The other sphere of its influence is common liberalization, which determines especially relative reduction of costs as one of the preferences of competitiveness under the conditions of standard acting market mechanism. The concept of policy of competitiveness in these economics accents the increasing of efficiency of offer side of economics under new conditions of globalization Š9Ë and usefulness of meaningful visions about efficient utilization of nationally oriented sources Š5Ë. The aim of the paper is to justify the legitimacy of creation and application of policy of competitiveness with emphasis on theoretical definition of factors of competitiveness, preferences and instrument provision of policy of competitiveness and based on the given knowledge to define the conceptual basis of policy of competitiveness for conditions in the Slovak economics. This paper is processed within the framework of project VEGA No. 1/0667/08 Funding and support of innovation development of small- and medium-sized companies in SR and in selected countries of the EU. 1. Legitimacy of policy of competitiveness Transforming economics of Central and East Europe have worked out a concept of industrial policy in the effort to overcome low competitiveness in comparison with advanced countries Š7Ë. The concept of industrial policy elaborated in the period of time of decline of conversion of many industrial branches, was not only new concept of policy of competitiveness, but it was significantly specified policy type. The industrial policy in transforming economics was drawn on branch or business undertaking principle of determination of structural modifications on one hand, but on the other hand, as a separated part of economic policy it was insufficiently connected with currency and financial policy. If the functions of economic policy are taken by various special interest group representing usually short-term partial aims of representatives of the major industrial groups, the industrial policy could not even be the real component part of economic policy. The industrial policy interpreted in this way, elaborated as a branch type of specific policies may interfere with the principles of market system acting along with broadly operating policies and thus result in non-optimal allocation of sources from the long-term point of view Š8Ë. On the other hand, an unbalance of economic policy in connection with increase of competitiveness of economics is shown in its orientation only to creation of stable macroeconomic development as one of the conditions of competitiveness of economics without more broadly applied ambition to stimulate qualitative parameters of economic development and improvement of competitiveness. It results from abovementioned that the concept of policy of competitiveness (diagram 1) is more adequate at ensuring of the increase of competitiveness of economics in comparison with the concept of industrial policy. Diagram 1. A draft of policy of competitiveness Source: Own diagram Total draft of policy of competitiveness has to identify, analyze and indicate possible or required development of key factors and main indicators of competitiveness in the economy as a whole and at the same time it has to define a setting of relevant sources of policy of competitiveness in mutual interconnection. 2. Policy of competitiveness under the conditions of the Slovak economics Improvement of economical and political approach for support of competitiveness of the Slovak economics requires broader understanding of the problem of support of competitiveness improvement. It is needed to understand the problems of central government support of competitiveness as a support of total increase of economics Š1Ë and based on this, it is necessary to interconnect particular policies within macroeconomic policies, as well as within cross-sectional (specific) policies from the position of preferences of competitiveness improvement. Anyway, an accomplishment through branch approach does not enable needed interaction of aggregate and relevant cross-sectional and structural views on improvement of competitiveness of economics and its improvement as a whole, especially in the case when the result of interaction is limited to the balance of state budget on the level of relevant chapters. By this reason, the National strategic reference framework of SR as a draft document for policy strategy of competitiveness of economics of SR has been worked out, approved by the Government of the Slovak Republic on December 21, 2006 and officially adopted by the European Commission on August 17, 2007, which document enables the interconnection of the given policies and instruments including a creation of balanced economic legislation (in accordance with the EU legislation) on one hand, and on the other hand, it represents the basic strategic document of SR for utilization of means from funds of the European Union in 2007-2013. The problems of competitiveness of economics has alleconomics nature, while an unsubstitutable place of macro policies included within results from the fact that it is possible to express the comparable level of competitiveness of the given economics in an aggregate by the difference of price levels or by Exchange Rate Deviation Index (ERDI). It applies in general that the increase of price level and the reduction of its difference against advanced economics causes the improvement of economic level of the country what results in ERDI decrease and economics competitiveness improvement at the same time. The increase of price level for the interest of its approaching to the price level of advanced countries is usually connected with inflation increase the control of which is the domain of currency policy. The approaching of price levels is usually carried out by real appreciation of currency, i.e. faster increase of inflation than devaluation rate. However, the problem consists in the fact that really appreciation of currency may not correspond in general with really improved economics performance. The currency may be overestimated due to various non-economic and speculative factors, what will cause that real effective currency exchange rate are not reliable indicator for currency policy. It results from the abovementioned that it is needed to monitor continuously the development of real effective exchange rate and confront it with real increase of labour productivity, reported based on indicators characterizing the level of technologies, product differentiation, development of exchange relations, and so on. The currency should be retained in a tendency of real appreciation in the case if this appreciation corresponds with real growth of labour productivity. Devaluation of currency does not stimulate entrepreneurial sphere to a growth of quality competitiveness due to expectation of occurrence of a trade gap, rather on the contrary, it causes to slowing-down of reforms, innovation processes and maintaining on policy of low wages. From the point of view of improvement of competitiveness of economics, the expenditures of state budget and tax burden of entrepreneurial subjects would be gradually decreasing within the framework of fiscal policy. The maintaining of a deficit of the state budget on relatively low level is of the same importance, what subsequently results in lower level of interest rates and expanding space for provision of loans to entrepreneurial sector for loan portfolios of commercial banks. An application of specific instruments at support of improvement of competitiveness must have cross-sectional nature, but only in accordance with market conformity it is needed the selection criteria of support of certain segments of economics to have also a horizontal nature. Proceeding from the production priority contributing to quality aspects of economic growth, and after all to total gain of economics, it would be appropriate to concentrate to such segments of economics, which have relatively high dynamics of trading on world markets (more than 5% annually), which are characteristic by high level of processing (higher rate of value added, relatively higher price per kilogram and export prices) and which would contribute significantly to improvement of the balance of trade by replacement of import and increase of export. The key place within specific policies of support of competitiveness improvement would be taken by policy of support of creation, diffusion and subsequent implementation of technologies and innovations, so called technological and innovation policy Š3Ë. In contrast to industrial policy, the technological and innovation poli cy does not concentrate on support of economically more favourable structure of branches, or departments, but on quality and products and services competitiveness by innovations. Under the influence of innovation, especially radical ones, a whole series of new branches (information technologies, biotechnologies, nanotechnologies and so on) is establishing. The branches which will go beyond traditional branches in their competitiveness are taking the growth potential and become the significant factors of structural changes and modernization of economics. The existence of technological and innovation policy is more pressing as the competition presses on international market become more intense, a period of time of innovation cycles becomes shorter and demands on timeliness of innovations become higher. Technological and innovation policy represents now the comprehensive system taking long-term of society and impacts on its future development into account, as well as the systematic analysis and development assess ment. It includes the measures supporting the offer side, i.e. penetration of innovation into market, as well as development of pro-innovation business environment. Efficiency of technological and innovation policy as a mean of improvement of economics competitiveness depends on sources, representing knowledge and research potential, including the channels of transfer and diffusion of technological progress on one hand, and on instruments stimulating the willingness of business sphere to undergo increased risk connected with innovation activities, on the other hand. Also balance in orientation of innovations to product- and process ones is of the same importance, what determines the way of achievement of competitive advantage (by qualitatively new utility parameters of products or by rationalization by lower production costs influencing the price of products). Diagram 2 shows the structure of technological and innovation policy. Diagram 2. Structure of technological and innovation policy Source: Š6, p. 175Ë Under the conditions of the Slovak economics, similarly as for other transforming economics, technological and innovation policy is not accomplished thoroughly by then. It is necessary to identify directions of industrial research and development by a program, which could be used in the process of product differentiation, within a common tendency of support of creation, diffusion and implementation of technologies and innovations (enforcing in economically advanced economics). According to our opinion, the program contents of industrial research and development would be focused to three main areas Š4Ë, Š8Ë as it follows: 1) Research and development focused to achievement of high value added The aim of the given group of industrial research and development will be to contribute to the increase of value added of industrial production in SR. It is desirable to utilize the intensifying factors including research and development in the long-term horizon, so that the portion of value added on gross production in processing industry to increase by 2020 to the level of 35%. 2) Research and development ensuring standard innovation development The aim of the given group of industrial research and development will be to ensure an increase of competitiveness of domestic production within opened internal market of the European Union. In the long-term horizon, it would be reflected by an increase of coverage of domestic consumption by domestic production, especially in the furniture industry, paper industry, pharmaceutical industry, footwear industry and textile industry by 15-20%, what means that the level of domestic coverage in light industry (including pharmacy) would attain 60-65%. At the same time, it is desirable to increase competitiveness of standard commodities of processing industry by innovation process, especially of machinery industry, electrotechnical industry and chemical industry so that this increase of value could be shown in long-term horizon up to the adjustment of foreign-trade balance of Slovakia. 3) Research and development supporting global problems handling The aim of this given group of industrial research and development shall be to join to handling of global problems, especially in the sphere of protection of living en vironment, health of population and ensuring of fulfillment of indicators of sustainable development. In the long-term horizon, it means to increase total expenditures to research and development gradually, so that we could attain the level of economically comparable countries of the EU. It is expected that the indicator of total expenditures for research and development could be on the level of 1,5% GDP by 2020. However, it requires to increase dynamically the portion of expenditures for research and development especially from the part of entrepreneurial sphere. The indivisible part of technological and innovation policy is a stimulation of development of entrepreneurial environment. The entrepreneurial environment creating the framework of financial, tax, legal and other control instruments influences the side of offer as well as the side of demand. It principally influences the behaviour of entrepreneurs, their willingness to undergo needed risk and thus at the same time determines the space of occasions for utilization of benefits of innovation activities. Main instruments of creation of favourable entrepreneurial environment include tax measures, patent protection, and legal regulations facilitating the execution of all the transactions connected with entrepreneurial activity. Innovation business making is, based on experiences, limited mostly by inappropriate regulations, directives and insufficient flexibility of legislation. It prevents to use new possibilities of scientific and technical progress, especially in the first phases of development of innovation, when the uncertainty of penetration into market is the highest. Creation of appropriate business environment requires the application of governmental coordination function. It results from abovementioned that technological and innovation policy and support of scientfic and technical progress is effective only if it is based on consensus of government, commercial sphere, research and educational institutions, independent experts and representatives of employees organizations. The important motivation factor for business sphere in the area of fulfillment of aims of technological and innovation policy is to be an application of Operational program Competitiveness and economic growth1, which has earmarked EUR 772 millions for this area. 1 Operational program Competitiveness and economic growth (OP C&EG) is based on the National strategical reference framework of SR (NSRF of SR) for 2007-2013, including all basic policies of the European Community for economic, social and territorial cohesion (Strategic general principles of Community for cohesion; Strategy of competitiveness of Slovakia up to 2010, Lisbon s strategy for SR and connected set of integrated principles for 2005 2008 approved by the Commission in the area of support of economic growth and labour occasions in Europe; industrial and energy policy of the EU as well as the strategy of the EU for provision of sustainable development). The priority lines of OP C&ED with focus to support of innovations and new technologies are to fulfill long-term vision of economic and strategic development of the country, which NSRF defines as General convergency of economics of SR to the average of the EU 15 by sustainable development. The strategy of fulfillment of outlined vision results from this, defined as Considerable improvement of competitiveness and performance of regions and Slovak economics while respecting sustainable development up to 2013. OP C&ED works out the specific priority of NSRF Support of competitiveness of business undertakings and services especially through innovations through priority line 1 Innovation and growth of competitiveness, priority line 2 Power engineering and priority line 3 Tourism, which are classified within NSRF hierarchically as a specific priority under the strategic priority 2. Knowledge economics. In our opinion, developing of technological ability is needed to understand as an institutional process of learning, which must be undergone by entrepreneurial subjects in order to have an overview about the offer of technologies, be able to assess it, evaluate, select, use, adjust, improve and develop it independently. This process would lead gradually to creation of national innovation system, what represents, in principle, longterm goal of strategy of technological catching up. The support of this process requires, of course, a whole complex of measures the frame characteristic of which is included in the draft strategy of technological catching up. The key importance belongs especially to development of education, research and development as well as knowledge diffusion. In our opinion, it is possible to implement the program of support of implementation of strategy, technological catching up by the following specific measures given in Table 1. Table 1: Draft measures and forms of execution of strategy of technological catching up. Measures Execution form Measures for creation of marketconforming incentives Deregulation and liberalization of market environment Application of selection process of entry into market and exiting it Application of transparency of tax system Measures in the area of tax policy Option of deduction of expenses for research from legal corporate income tax basis Selective application of tax allowances of PZI inflow with emphasis on support of longterm oriented investments generating additional investments Measures in the area of improvement of material infrastructure Completion of transport, logistic and telecommunication network Completion of technologic networks Support of technologic institutions, state research and development capacities Measures in the area of technological infrastructure Establishing of technological centers Creation of information channels Measures in the area of development of human capital Support of international exchange of scientific knowledge Development of customer electronic commercial modules for MSP Support of business-making and innovation within the framework of education and trainings system Continuous improvement of quality of common and university education Support of university education from the point of view of creation of a basis of research activities Interconnection of qualification basis and activities of state education system with the needs of private sector System recovery of financial flows in the entire economics with direct connection to legislation Measures in the area of financial infrastructure Availability of short-term loans for financing of contracted production and investment loands for implementation of investment projects Selective subsidizing of loans at possibly successful technologically-oriented investments Establishment of technological loan funds Preparation of implementation of programs of financial support of technologically oriented MSP Source: Š3, p. 94Ë Based on complexity of draft measures, it results that implementing innovation of approach to conceptual basis of technological and innovation policy would be a multidimensional process. In this relation, it is necessary to reassess the role of state based on really applied proposals in the most successful economics in the European Union with a special attention paid to pro-innovation adaptation of state functions under the conditions of technological manner of production, exchange and information communication. 2. Conclusion The conceptual basis of competitiveness policy is oriented firstly to harmonization of competitive background of the Slovak economics with conditions for support of compatibility on the European market. Long-term absence of effective policy of competitiveness combined with broader transformation problems has caused considerable and increasingly dangerous gap in structural and innovation adaptation of the Slovak economics and thus a lagging of its competitiveness. This trend can be reversible only under the assumption that determining factors of modern development such as science and research, learning and creative productivity of human factor, as well as effective infrastructure for diffusion of inventions and innovations will move from a periphery into the center of attention and become a centre of policy of competitiveness. Its specific aims, content and instrumentary have, at the same time, be responsive sensitively and soberly to real power, strategy and specific activities of determining subjects in the process of globalization, especially of transnational corporations. In other words, globalization and integration dimensions are to be incorporated into conceptual basis of policy of competitiveness of SR, appropriate to conditions of the 21st century. Thus, the following can be considered to be its determinants: í continuous developing and expanding of investment background of economics based on purposeful combination of transfer of knowledge from abroad and universally supported development of science, research and development in Slovakia, í permanent development of learning of population reflecting the dynamic needs of new technological manner of production, exchange and information communication, í systematic building of technological and information infrastructure enabling and supporting the diffusion of new knowledge and innovations from domestic and foreign sources, í implementation of economic policy which supports the creation of necessary space for continuous enhancement of economics structure by new elements through its instruments based on implementation of innovations and establishing of new, innovations-oriented companies, í systematic survey of possible futures in the form of visions, prognoses, strategies, plans and programs enabling to identify possible trends of varying reality in due time and to response to them in a certain advance, í application of principle of participation based in which all the relevant structures and interest groups representatives of science and research, business sphere, employees, regional self-government participate along with government as necessary assumption of objectification of development goals, as well as of harmonization of interests and motivation of the subjects participating in their implementation. BIBLIOGRAPHY Š1Ë BOBÁKOVÁ, V. 2001. Konkurenčná schopnost ekonomiky. In: Acta Oeconomica Cassoviensia N°5, 2001, č. 5, s. 37-45. ISSN 80-225-1407-1 Š2Ë EUROPEAN COMMISSION. 2003. Raising EU R&D Intensity: Improving the Effectiveness of Public Support Mechanism for Private Sector Research and Development. Report to the European Commission by an Independent Directorate-General for Research Information and Communication Unit. Brussels: European Commission, 2003. Š3Ë HEČKOVÁ, J.: Koncepcia technologickej politiky. In: Ekonomika a spoločnos?, roč. 9, 2008, č. 1, s. 87-95. ISSN 1335-7069 Š4Ë HEČKOVÁ, J.: Súčasný stav slovenského priemyslu a perspektívy jeho ?alšieho rozvoja. Prešov: Fakulta manažmentu Prešovskej univerzity v Prešove, 2008, 162 s. ISBN 978-80-8068-746-5 Š5Ë HEČKOVÁ, J. CHAPČÁKOVÁ, A.: Teoretické východiská problematiky konkurenčnej schopnosti ekonomiky. In: Zborník vedeckých prác katedry ekonómie a ekonomiky ANNO 2008 (Ed.: Kotulič, R.). Prešov: Prešovská univerzita v Prešove, 2008, s. 196-209. ISBN 978-80-8068-798-4 dostupné na internete: http://www.pulib.sk/elpub/FM/Kotulic7/index.html 6Ë KLAS, A. 2006. Inovácie a konkurenčná schopnos?. In: Konkurencieschopnos? slovenskej a českej ekonomiky stav a perspektívy: Zborník príspevkov zo slovenskočeskej vedeckej konferencie konanej pod záštitou podpredsedu vlády SR pre európske záležitosti, ?udské práva a menšiny p. Pála Csákyho. Bratislava: Ekonomický ústav SAV, 2006. ISBN 80-7144-148-1 Š7Ë OUTRATA, R.: Konkurenčná schopnos? a procesy konvergencie vo svetovej ekonomike. In: Ekonomický časopis, roč. 48, 2000, č. 6, s. 705-727. ISSN 0013-3035 Š8Ë [IKULA, M. a kol.: Determinanty formovania priemyselnej politiky v podmienkach globalizácie a integrácie. Bratislava: Ústav slovenskej a svetovej ekonomiky SAV, 2003. ISBN 80-7144-134-1 Š9Ë [IKULA, M.: Konkurencieschopnos? v súradniciach globalizácie. In: Ekonomický časopis, roč. 54, 2006, č. 10, s. 965-982. ISSN 0013-3035 Data Envelopment Analysis and its Application in Education UDC: 005.336.1:378 ; 005.311.12;519.2 Violeta Cvetkoska1 1Faculty of Economics - Skopje, vcvetkoska¿eccf.ukim.edu.mk XII International Symposium SymOrg 2010, 09. 12 june 2010. Zlatibor, Serbia Data Envelopment Analysis (DEA) is a relatively new nonparametric approach for evaluating the performance of complex entities called Decision Making Units (DMUs) which convert multiple inputs into multiple outputs. In a relatively short period of time Data Envelopment Analysis (DEA) has grown into a powerful, quantitative, analytical tool for measuring efficiency of decision making units. DEA has been successfully applied in many different fields in worldwide. This paper provides introduction to DEA and describes the application of Data Envelopment Analysis in education. 1. Introduction Data Envelopment Analysis (DEA) is a relatively new data oriented mathematical approach for evaluating the performance of a set of peer entities called Decision Making Units (DMUs) which convert multiple inputs into multiple outputs. Since DEA was first introduced in 1978, researches in a number of fields have in a short period of time recognized that DEA is an excellent and easily used methodology for modeling operational processes for performance evaluations. In Š31Ë is given survey and analysis of the 30 years of scholarly literature in DEA up to the year 2007. This paper is in 8 parts of which this is the first. Data Envelopment Analysis (DEA) as a tool for determining the relative efficiency is presented in Section 2. The history of DEA has been mentioned briefly in Section 3. DEA methodology is described in Section 4. Strenghts and limitations of DEA are presented in Section 5. Literature search for application of DEA in education is overviewed in Section 6, while conclusions are given in Section 6. Bbibliography citations are presented in the final section. 2. Efficiency and data envelopment analysis Fried, H. O., Lovell, C.A.K., and Schmidt, S.S., in Š34Ë explain that the interest in measuring efficiency has two reasons. First of all, they are success indicators, performance measures, by which production units are evaluated. Second, only by measuring efficiency and productivity, and separating their effects from the effects of the production environment can we explore hypotheses concerning the sources of efficiency or productivity differentials. Identification of sources is essential to the institution of public and private policies designed to improve performance. Productivity efficiency has two components. The purely technical, or physical, component refers to the ability to avoid waste by producing as much output as input usage allows, or by using as little input as output production allows. Thus the analysis of technical efficiency can have an output augmenting orientation or an inputconserving orientation. The allocative, or price component refers to the ability to combine inputs and outputs in optimal proportions in light of prevailling prices. Koopmans in Š48, p.60Ë provided a formal definition of technical efficiency: a producer is technically efficient if an increase in any output requires a reduction in at least one other output or an increase in at least one input, and if reduction in any input requires an increase in at least one other input or a reductionin at least one output. Thus a technically inefficient producer could produce the same outputs with less of at least one input, or could use the same inputs to produce more of at least one output. Debreu in Š29Ë and Farrell in Š33Ë introduced a measure of technical efficienncy. Their measure is defined as one minus the maximum equiproportionate reduction in all inputs that still allows continued production of given outputs. A score of unity indicates technical efficiency because no equiproportionate input reduction is feasible, and a score less than unity indicates the severity of technical inefficiency. Following work by Dantzig Š27Ë and Farrell Š33Ë, Charnes, Cooper, and Rhodes Š16Ë developed mathematical programming technique, Data Envelopment Analysis (DEA). DEA is a non-parametric linear programming technique that computes a comparative ratio of outputs to inputs for each unit, which is reported as the relative efficiency score. The efficiency score is usually expressed as either a number between 0-1 or 0-100%. 100% efficiency is attained for any Decision Making Unit (DMU) only when: (a) None of its outputs can be increased without either increasing one or more of its inputs or decreasing some of its other outputs (b) None of its inputs can be decreased without either Decreasing some of its outputs or Increasing some of its other inputs. sufficiently large that issues of degrees of freedom, etc., were not a serious problem despite the numerous input and output variables used in the study. Nevertheless, unsatisfactory and even absurd results were secured from all of the statistical-econometric approaches that were tried. While trying to respond to this situation, Rhodes called Coopers attention to Farrells seminal article, Š33Ë. Charnes, Cooper and Rhodes extended Farrells work and succeeded in establishing DEA as a basis for efficiency analysis. Details of the project are described in Charnes, Cooper and Rhodes Š20Ë. A decision-making unit (DMU) with a score less than 100% is deemed inefficient relative to other units. A brief history of DEA can be found in Š21Ë. Thanassoulis, E., in Š63Ë points out that DEA is one of the methods of performance measurement which support type of information such as: identification of good operating practices for dis semination; most productive operating scale sizes; the scope for efficiency savings in resource use and/or for output augmentation; most suitable role model operating units an ineffi cient unit may emulate to improve its performance; the marginal rates of substitution between the fac tors of production and; Productivity change over time by each operating unit and by the most efficient of the operating units at each point in time. 3. Data envelopment analysis History The term Decision Making Unit (DMU) was used for the first time in the CCR model proposed in Charnes, Cooper and Rhodes Š16Ë. The term DEA (Data Envelopment Analysis) was introduced in their report Š18Ë, Rhodes Š58Ë and appeared in Charnes, Cooper and Rhodes subsequent paper Š19Ë. In their originating study, Charnes, Cooper and Rhodes Š16Ë described DEA as a mathematical programming model applied to observational data ŠthatË provides a new way of obtaining empirical estimates of relations such as the production functions and/or efficient production possibility surfaces that are cornerstones of modern economics. DEA originated from efforts to evaluate results from an early 1970 project called Program Follow Through a huge attempt by the U.S. Office (now Department) of Education to apply principles from the statistical design to experiments to a set of matched schools in a nationwide study. The purpose of the study was to evaluate educational programs designed to aid disadvantaged students in U.S. public schools. The data base was 4. DEA methodology Data Envelopment Analysis estimates a piece-wise linear production function relative to which the efficiency of each firm or decision-making unit (DMU) can be measured. The simplest variant of DEA is a constant returns to scale model in which n decision making units produce s distinct output types using m distinct inputs. The quantities of outputs and inputs which the kth decision-making unit produces and consumes respectively are denoted by Yrk, r=1,…,s and Xik, i= 1,….,m. The kth decision making unit then chooses its vector of input weights, vik, i=1,…,m, and output weights, urk, r=1,…,s, with the aim of maximizing its weighted sum of outputs subject to a number of constraints. These are that: (i) the chosen weights are such that, when applied to the output and input vectors of any decision-making unit, the ratio of weighted output to weighted input should not exceed unity, (ii), the weighted sum of inputs should be non-negative, and (iv) the weight attached to each input should be non-negative. Now this is a fairly simple linear programming problem. The complete specification of a DEA involves the simultaneous solution of n such programmes one for each decision making unit. The above arguments may be represented by a suite of linear programming problems. Formally, for each k, max h s k ∑ = = r Yu rk rk  (1) m −∑ = i = ik r i rj rk = m subject to, ∑ s Yu ∑ Xv ,0≥urk ,0≥vrk = ik Xv ik ij ≤ ,0 j=1,.....,n    (2) (3) r=1,....,s            (4) i=1,....,m (5) The optimal value of hk is the efficiency score of the kth decision making unit. It must lie between zero and one; if hk=1, then k i tecnically efficient and lies on the efficiency frontier. As specified above, the DEA problem is one of output maximisation. The corresponding input minimisation problem can be constructed by analogous means. In Š44Ë is given a simple example of five universities (A, B, C, D, E) producing two outputs, y1 (for example, the number of graduates achieving good degrees) and y2 (for example, the number of graduates going into employment) using the input x (for example, the number of undergraduates). Fig. 1 plots the ratio of output y1 to x against the ratio of output y2 to x, and the piecewise linear boundary which joins up universities A, B, C and D is the production frontier. All DMUs on the frontier are efficient since none can produce more of both outputs (for a given input level) than any other unit on the frontier. In contrast, university E, which lies inside the frontier, is inefficient, and the ratio OE/OE measures university Es efficiency relative to the other DMUs in the data set. Fig.1. Diagrammatic representation of an output oriented DEA The CRS assumption can be relaxed and the DEA model can be easily modified to incorporate variable returns to scale (VRS), see Banker, Charnes, & Cooper Š7Ë. While choice of orientation does not affect efficiencies under CRS, it does under the assumption of VRS, see Coelli, Rao, & Battese Š24Ë, although it has been shown only to have a slight influence in many cases, see Coelli & Perelman Š23Ë. Basic DEA models and extensions to DEA models can be found in Š15Ë, Š22Ë, Š25Ë, Š26Ë. DEA was initially been used to investigate the relative efficiency of not-for-profit organizations, only to quickly spread to profit-making organizations. DEA has been successfully applied in such diverse settings as schools, hospitals, courts, the US Air Force, rate departments and banks. Charnes et al. Š15Ë have compiled an extensive discussion of efficiency models across a variety of industries. 5. Strenghts and limitations of DEA A few of the characteristics that make DEA a powerful tool are: It is based on a distance function approach and hence can handle multiple outputs and multiple inputs; It doesnt require an assumption of a functional form relating inputs to outputs. DMUs are directly compared against a peer or combination of peers. Inputs and outputs can have very different units. For example X1 could be in units of lives saved and X2 could be in units of dollars without requiring an a priori trade off between the two. The same characteristics that make DEA a powerful tool can also create problems. An analyst should keep these limitations in mind when choosing whether or not to use DEA. Since DEA is an extreme point technique, noise (even symmetrical noise with zero mean) such as measurement error can cause significant problems. DEA is a good at estimating relative efficiency of a DMU but it converges very slowly to absolute efficiency. In other words, it can tell you how well you are doing compared to your peers but not compared to e theoretical maximum. Since DEA is a nonparametric technique, statistical hypothesis tests are difficult and are the focus of ongoing research. Since a standard formulation of DEA creates a separate linear program for each DMU, large problems can be computationally intensive. 6. Applications of DEA in education literature search Economists typically view educational outcomes as a function of a variety of school inputs, including school expenditures, pupil/teacher ratios, teacher experience, the prior attainment of pupils, peer group pressures and family background, see Hanushek Š38, 39Ë. There has been limited success in finding a causal link between school inputs and educational outcomes. Early work on the education production function concluded that teachers and schools differ dramatically in their effectiveness but that there is no strong or systematic relationship between school expenditures and student performance, see Hanushek Š39Ë. For application of DEA in the context of the evaluation of education providers in the primary and secondary sectors see Bessent and Bessent Š11Ë, Bessent et al. Š10Ë, Bradley et al. Š12Ë, Chalos and Cherian Š14Ë, Davutyan et al. Š28Ë, Fare et al. Š32Ë, Ganley and Cubbin Š36Ë, Jesson et al. Š40Ë, Lovell et al. Š50Ë, Kirjavainen and Loikkanen Š46Ë, Mancebon and Mar Molinero Š52Ë, Mayston and Jesson Š53Ë, Norman and Stoker Š55Ë, Ray Š57Ë, Smith and Mayston Š61Ë and Thanassoulis and Dunstan Š62Ë. Steve Bradley, Geraint Johnes and Jim Millington in Š12Ë calculate the technical efficiencies, based upon multiple outputs school exam performance and attendance rates of all secondary schools in England over the period 1993-1998. They estimate models to examine the determinants of efficiency in a particular year, and the determinants of the change in efficiency over the period. Their results suggest that the greater the degree of competition between schools the more efficient they are. The strength of the effect has also increased over time which is consistent with the evolution of the quasi-market in secondary education. Competition is also found to be an important determinant of the change in efficiency over time. Nurhan Davutyan, Mert Demir and Sezgin Polat in Š28Ë used Data Envelopment Analysis and econometric methods to evaluate the systems efficiency. They identify scale diseconomies and relate them to underlying structural characteristics of the system. Selected suggestions on improving performance are offered. The roles of heterogeneity and centralization are also highlighted. Heterogeneity is modeled as an undesirable measure. The linkage between indicators of centralization and scale diseconomies was found to be statistically significant. The authors believe this to be the first study that investigates the impact of systemic characteristics such as heterogeneity and centralized structure on educational outcomes for Turkey. The higher education has characteristics which make it difficult to measure efficiency: it is non-profit making; there is an absence of output and input prices; and higher education institutions (HEIs) produce multiple outputs from multiple inputs. Studies which examine the efficiency of the higher education sectors of various countries such as the UK, the USA, Canada, Finland, Israel, Australia and China have fallen into two main groups: 1. those which have examined the efficiency of a particular department, programme or activity, see (Beasley Š8Ë, Š9Ë; Coelli et al., Š24Ë; Haksever & Muragishi Š37Ë; Johnes, Š43Ë; Johnes & Johnes Š41Ë, Š42Ë; Korhonen, Tainio & Wallenius Š49Ë; Madden, Savage & Kemp Š51Ë; Tomkins & Green Š66Ë, and 2. those which have examined the performance of the entire HEI, see (Ahn et al., Š2Ë; Ahn & Seiford Š1Ë; Athanassopoulos & Shale Š5Ë; Avkiran Š6Ë; Breu & Raab Š13Ë; El Mahgary & Lahdelma Š30Ë; Johnes Š44Ë; Ng & Li Š54Ë). Ahn and Seiford in Š1Ë used DEA to determine the relative efficiency of 153 doctoral-degree granting institutions of higher learning (IHLs). Of these, 104 were public and 49 were private. The purpose of the study was to determine the effect of different sets of output variables on the relative efficiencies of public and private institutions. Public IHLs are often funded based on an enrollment-related output measure. For this reason, Ahn and Seiford predicted that public IHLs would be more efficient when enrollment-related outputs were considered and private IHLs would be more efficient when less closely monitored outputs were considered. This hypothesis was tested using multiple variable sets. In one trial, faculty salaries, physical investment, and overhead expenses were used as input variables. Undergraduate full-time equivalent students (FTEs) and graduate FTEs were used as output variables. Using these enrollment-related output variables, public IHLs were found to be more efficient than private IHLs. A second trial used faculty salaries, physical investment, overhead expenses, undergraduate FTEs and graduate FTEs as inputs. Undergraduate degrees, graduate degrees, and grants were used as output variables. Using these less closely monitored output variables, private universities were found to be more efficient. The purpose of the paper Š44Ë is to examine the possibility of measuring efficiency in the context of higher education. The paper begins by exploring the advantages and drawbacks of the various methods for measuring efficiency in the higher education context. The ease with which data envelopment analysis (DEA) can handle multiple inputs and multiple outputs makes it an attractive choice of technique for measuring the efficiency of higher education institutions (HEIs), yet its drawbacks cannot be ignored. Thus, a number of extensions to the methodology, designed to overcome some of the disadvantages, are presented. The paper ends with an application of DEA to a data set of more than 100 HEIs in England using data for the year 2000/01. Technical and scale efficiency in the English higher education sector appear to be high on average. The Pastor, Ruiz, and Sirvent Š56Ë test for comparing nested DEA models is useful in reducing the full model to a smaller significant set of inputs and outputs. Thus, the quantity and quality of undergraduates, the quantity of postgraduates, expenditure on administration, and the value of interest payments and depreciation are significant inputs to, and the quantity and quality of undergraduate degrees, the quantity of postgraduate degrees and research are significant outputs in the English higher education production process. The possibility of differences in the production frontier (and hence the distribution of efficiencies) of three distinct groups of HEIs is explored using a test proposed by Charnes, Cooper, and Rhodes Š17Ë but no significant differences are found. Bootstrapping procedures, however, suggest that differences between the most and least efficient English HEIs are significant. Little work has been done on measuring the efficiency in producing any of the outputs of higher education institutions in China. For recent studies see (Ng & Li, Š54Ë; Johnes and Yu in Š45Ë). Ng and Li in Š54Ë used DEA in an attempt to examine the effectiveness of the education reforms of the mid1980s in China by focusing on the research performance of 84 key Chinese HEIs from 1993 to 1995. Using research staff and funding as inputs, and publications data as outputs, the authors find mean research efficiency in the Chinese higher education sector to be around 7680% over the three year period. Variations in efficiency levels between the three geographical regions of China (coastal, central and western) are also found, but these results are mixed: the HEIs in the central zone perform best, on average, in 1993 and 1995, but it is the western zone which has the highest mean efficiency in 1994. Two alternative approaches have been taken in a small number of empirical studies: 1. to evaluate the performance of all departments within one university, see (Arcelus & Coleman Š4Ë; Friedman & Sinuany-Stern Š35Ë, Sinuany-Stern et. al. Š60Ë), and 2. to analyse the performance of higher education sectors across states or countries, see (Breu & Rabb Š13Ë; Kocher, Luptácik & Sutter Š47Ë). The validity of these approaches seems particularly questionable on the grounds that the DMUs in each case are clearly not a homogenous set of producing units. Sinuany-Stern et al. in Š60Ë used DEA to determine the relative efficiency of 21 departments at Ben-Gurion University. Operational expenditures and faculty salaries were used as inputs. Grant money, number of publications, number of graduate students and number of credit hours offered were used as outputs. Fourteen of the departments were found to be inefficient. Sinuany-Stern et al. in this paper also tested the effects of variations in inputs and outputs on efficiency scores. In one trial, one output was deleted from the original model. The output was chosen for deletion because no departments were relatively inefficient in that output. In this trial, two additional departments became inefficient. The DEA model was run again with the two inputs combined. Again, two additional departments became inefficient. Technical efficiency scores in the department level analyses tend to be lower, on average, than those computed in HEI level studies. Mean technical efficiencies computed from department level studies vary as follows: 50 to 60% for UK economics departments, see Johnes & Johnes Š41Ë, Š42Ë; around 70% in UK departments of chemistry and physics, see Beasley Š8Ë; 65 to 82% in Australian departments of economics, see Madden et al., Š51Ë; 72% in economics research units in Finland, see Korhonen et al., Š49Ë; and 82 to 87% in the administration sector of Australian universities, see Coelli et al., Š24Ë. Evidence from HEI level studies suggests that mean technical efficiency varies from around 70 to 80%, see Ahn & Seiford Š1Ë, Ng & Li Š54Ë, to well over 90%, see Ahn et al., Š2Ë; Athanassopoulos & Shale, Š5Ë; Avkiran, Š6Ë; Breu & Raab, Š13Ë; Johnes Š43Ë, Š44Ë. The single cross country study suggests, not surprisingly given the disparate nature of the DMUs, that mean technical efficiency is low (23% or 37% depending on whether CRS or VRS are assumed). University research and its transfer to industry has been a topic of interest in the management of technology literature over decades. Universities provide education as well as innovations resulting from their research. Several researches focused on efficiency of university research transfer, see Anderson, T.R., Daim, T. U., Lavoie, F. F., Š3Ë, Siegel and Phan Š59Ë, Thursby and Kemp Š64Ë, Thursby and Thursby Š65Ë. A data envelopment analysis approach in Š3Ë is used as a productivity evaluation tool applied to university technology transfer. The methodology included weight restrictions providing a more comprehensive metric. The results include an examination of efficiency targets for specific universities as well as peer count of inefficient universities. Evidence of significant efficiency in university technology transfer is found in many leading universities. An examination of differences between public versus private universities and those with medical schools and those without indicated that universities with medical schools are less efficient than those without. Applications of DEA in the context of education are surveyed in Table 1.  Table 1. Applications of DEA in the context of education 1 Number of teachers in each province 2 Number of classrooms in each province 3 Average score of students from each province in the high school entrance examination 4 Standard deviation of the above-mentioned quantitative examinations scores 5 Standard deviation of the above-mentioned verbal examinations scores 6 Number of high school students in each province 7 Average (quantitative examination) score of students from each province in the university entrance examination 8 Average verbal examination score of students from each province in the university entrance examination 9 Staff time is measured using a measure of the full-time staff to student ratio (STAFF) 10 The quality of the staff input is reflected by the percentage of the faculty with the associate professor position of higher (STAFFQ) 11 Research funding is measured using research expenditure (FUNDS) 12 Index of library books 13 Index of the area of the buildings 14 Index measuring the proportion of all students who are postgraduates 15 Index of the total number of research publications 16 Index of research publications per member of academic staff (RESPP) 17 Index of the prestige of the HEI 7. 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K., Measuring the research performance of Chinese higher education institutions: An application of data envelopment analysis, Education Economics, 8(2), (2000) 139?156. Š55Ë Norman, M., Stoker, B., Data Envelopment Analysis: The Assessmentof Performance. Willey, Chichester, 1991. Š56Ë Pastor, J. T., Ruiz, J. L., & Sirvent, I., A statistical test for nested radial DEA models. Operations Research, 50(4), (2002), 728735. Š57Ë Ray, S.C., Resource use efficiency in public schools: A study of Connecticut data, Management Science 37, (1991), 1620-1628. Š58Ë Rhodes, E. L., Data Envelopment analysis and Related Approaches for Measuring the Efficiency of Decision Making Units with an Application to Program Follow through in U.S.,Education, unpublished Ph.D., thesis, Carnegie-Mellon University, School of Urban and Public Affairs, Pittsburg, PA, 1978. 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In: Kantarelis, D., (Ed.), Business and Economics for the 21st Century, vol. 2, Business and Economics Society International, Worcester, MA, pp. 303311, 1998 Š65Ë Thursby, J.G., Thursby, M.C., Who is selling the Ivory Tower? Sources of growth in university licensing, Management Science 48 (1), (2002), 90104. Š66Ë Tomkins, C., & Green, R. (1988). An experiment in the use of DEA for evaluating the efficiency of UK university departments of accounting. Financial Accountability and Management, 4(2), (1988), 147-164. Book review Innovation Management P.K.Amed, C.D. Shepherd, Innovation Management, Prentice Hall, 2010 In this book, modern management is presented as ori es of development leaning on the key organizational areas that are the leaders in development, with a special insight into the supply chain as a broader context that has an impact upon innovation. The knowledge and learning management are particularly important since their essential goal is to develop key competences to support strategic goals. Five basic processes are paid special attention to: finding /identifying the existing knowledge, new knowledge creation, ensuring acquisition of knowledge, storage and access to knowledge, implementation and usage of knowledge. Conceptually, innovation is rather broadly interpreted and is related to most varied meanings. The authors quote some interpretations of innovation as creation or invention, innovation as diffusion and learning, discrete event, trajectory, incremental or radical change, the process on the level of the firm or the process in the regional or national contexts. Innovation adds value to the product or to the process. It may be external or internal, and the orga ented towards meeting the varied and specific customers needs. In such circumstances, innovation is considered to be the very centre of the corporate growth and development and is perceived as the basic form of both vitality and competitive advantage. This voluminous, over five hundred page book begins with the elaborate description of the concepts of innovation and creativity, and proceedes with the chapters dealing with strategies, particularly technology development strategies and a broader context of strategic technology management. The portfolio management, the innovation process and product management are analysed in detail. The development of innovative organizational culture and leadership are viewed as a key factor of an organizational innovative strategy, and the issues of innovation in the global context are presented through a large number of examples of modern networks of research and development, their different configurations and structures. The concluding chapters deal with the structural process nizations capacity to adopt external innovation and knowledge is called the absorption capacity. New products and services are only part of the overall efforts made by the companies to make a difference and achieve competitive advantage. In addition to the primary focus upon the firm, attention is also paid to the issues of national competitiveness, especially in terms of the firms activities towards achieving competitive advantage and the competitiveness on the national, macro level. On the firm level, the term competitiveness means the firms opportunity to improve profitability, market share and size. The traditional economics theory points to the typical competitiveness measures based upon the comparative costs of production. Competitiveness is achieved in that a certain output is produced at lower costs. This is achieved either by reducing the costs of the production factors or by increasing the factor productivity. On the micro level, the competitive advantage is claimed to equal competitiveness. The authors, however, point out that it is not the case on the macro, national level, as the usual competetiveness indicators here are expressed through the conditions of international trade. In this context, competitiveness is understood as the extent to which a nation can, in free and fair market conditions, produce goods and services that passed tha controls of international markets and simultaneously sustain and incraese the real income of its citizens. Thus the competitiveness of the national economy becomes a concept that develops and changes contunually and in recent times it is simply explained as a method to improve the standard of living. (OECD, 1996). The regional innovative clusters are viewed as areas in which innovation swarm and are therefore called innovation bee-hives or innovation sunspots, which is presented on the example of the Silicon Valley, California. The reasons for cluster formation are analysed through specific impacts and conditions characteristic of certain geographical areas, through transaction costs, the knowledge economy, competitiveness and trade. The opportunities offered in certain regions as the reason for cluster forming represent a traditional explanation related to the arguments proposed by Schumpeter and presented as early as 1943, that innovation offers opportunities for entrepreneurs and that companies and individuals who decide to take the opportunity or innovation are attracted by the location, the site they lie at. The attractiveness of a certain business policy has a multiplying effect as that region begins to be recognized by innovation as well as by new opportunities. The arguments related to transaction costs generally lean on the works of Coase (1937) and Williamson (1975) who maintained that local networks emerge and grow further in order that transaction costs should be reduced. Explanations in the knowledge economy domain start from modern, evolution theories as well as from theories of trade. In the regions where knowledge and learning accumulate chances are bigger that innovation will result. Innovation and knowledge accumulation are interrelated and intertwined resulting into innovation chains or trajectories. According to Porter, the reasons for innovations to be created lie primarily in the domain of competitiveness. Porter claims that specific combinations of conditions are found within states, and they have a powerful impact upon the competitive strengths of the firms that are seated here. Explanations from the trade domain are related to Krugman who set a hypothesis (1991) that the comparative advantage of the highest-developed world economies is today lost to the economies of low wages and that today developed countries have to create absolute advantage based on innovative capacities and competences. The product and service innovation is focused upon meeting the needs of international consumers. Krugman claims that innovation is a key lever that ensures absolute advantage in trade, but innovation can be created only in the regions characterised by a high level of knowledge. Contrary to Porter, Krugman highlights the importance of international trade in defining the success or the failure of certain regions. Krugmans contribution is considerable when we talk of the demand-induced innovation. The core of innovation is creativity and this is interpreted from different points of view. From the organizational point of view, creativity is defined as a capacity to consistently achieve different and valuable results. Related to craetivity are the myths and wrong opinions that should be changed; they are often mirrored in the following sayings encountered in practice: all we need is good ideas, a good idea will appear by itself, I will recognize a good idea when I see it, we have just implemented an excellent idea and now we can take it easy and rest. Creativity is perceived as a five-key-step process: preparation, innovation opportunity, divergence, incubation, convergence. In their analysis of generic innovative strategies the authors list three basic types: product/market-oriented strategies, opportunity/risk-oriented strategies, and time (or activity)-based strategies. They are closely connected with technological development where innovation is introduced on each of the firms levels and domains: in the product/service domain, in the process domain, in the domain of administration, or in strategic domains. Special chapters are devoted to the technology management and the technology strategies. The best product, service or process technology is one that survives on the market, and the strategic management of technology determines the technology portfolio predicting and estimating future trends in development. Dr Maja Levi Jakšić Manual for Authors TITLE OF PAPER IN ENGLISH ( two lines at the most ) Marko Markovic1, Ivan Ivanoviæ2 1Faculty of Organizational Sciences in Belgrade 2Faculty of Economics in Belgrade Abstract - These are instructions for preparing papers that will be included in the jou rnal. Your papers should be prepared according to the instructions. 1. INTRODUCTION Papers have to be written in English. Original papers should be typed one sided A4 format (210x297mm). Use margin 2,5 upper, 2 cm lower, left and right. Maximal length of paper is 8 pages including tables, text, pictures, literature and other appendices. Pages are numbered with graphite pencil in upper right corner. 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[2] Bodily, S., Speadsheet Modeling as a Stepping Stone, Interfaces, vol. 16, No.5, pp 34-52 1986. [3] Protic D., Simulation of work on Airport Belgrade. Proceedings of work, SINFF-N, page 75 -81. Zlatibor UDC 005 ISSN 1820-0222 2011 - 58    Number 58, Year XVI March 2011. 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Delisle, Phd, Austin College Peter Bielik, Ph.D., Faculty of Economics and Management, Slovak Republic Milica Bulajić, PhD, Faculty of Organizational Sciences, Belgrade Sladjana Barjaktarović, PhD, Faculty of Organizational Sciences, Belgrade     Management is being regularly reviewed in DEST DEST - Department of Education, Science and Training of Australia Ulrich Periodicals Technical Editor Milivoje Radenković Andrej Novović Address Belgrade, Jove Ilića 154 Tel./fax. 381 11 3950 868 E-mail: manage¿ fon.bg.ac.rs http://management.fon.bg.ac.rs Journal is published quarterly Printed by Sigra Star, Belgrade  CIP Katalogizacija u publikaciji Narodna biblioteka Srbije, Beograd ISSN 1820-0222 = Management (Engl. ed.) COBISS.SR-ID 112265484 CONTENTS Competitive strategies in the conditions of digital economy Vesna Milićević, Bojan Ilić Ecological footprint as indicator of students environmentalawareness level at Faculties of organizational sciences, University of Belgrade of Maribor Nataša Petrović, Sonja Išljamović, Veljko Jeremić, Drago Vuk, Marjan Senegačnik Decision making criteria for outsourcing or insourcing of it service provision in public sector Dalibor Stanimirović, Mirko Vintar The efficacy of public-private partnership at infrastructure improving Sladjana Benković Measuring effectivness of KM projects Prabhakar Tunuguntla, Sanja Berjan Management of receivables in function of support to business success Snežana P. Knežević, Veljko Dmitrović, Marko Jovanović, Tijana Obradović  Hybrid public-private partnership models Vladimir Poznanić, Miloš Milosavljević Modeling the fraud-like investment founds by Petri Nets Daniel Ciuiu University leader and quality in higher education C. Rusu Copyright © 2004 by Faculty of Organizational Sciences  Book review Maja Levi Jakšić Competitive Strategies in the Conditions of Digital Economy UDC: 339.137.2:005.21 ; 004.738.5:339Ë::005 Vesna Milićević, Bojan Ilić Faculty of Organizational Sciences University of Belgrade The work deals with the complexity of creating and implementation of a competitive strategy in the conditions of digital economy. It analyses the characteristics of digital economy and the changes it brings about from the point of view of the strategic management. Special attention is paid to the analysis of the specific features of the business environment, network infrastructure and the nature of competition. The focus of our attention are te knowledge, information and ideas as resources. The study presents some current approaches to facors of competition, creation, and achievement of competitive advantages and also some concrete examples of a successful Internet business, with the prospects of its further develoment. 1. Introduction The development of digital economy brings about the challenges related both to exploring and anticipating the opportunities in the external environment and to novel approaches to business doing. The implications of the changes in strategic thinking deal with the redefining of the industrial structure, that is, the boundaries of certain activities, primarily from the input point of view. The exchange of information via the Internet, extranet and intranet can be viewed as a source of value creation. The modern, largely Web-based environment characterised by a growth orientation of the firm, its customers, suppliers and competitors towards electronic business means changes in both the strategic and operational management, and especially in the method the firms compete. The Internet use has broken through the space and time barriers, making the importance of physical location negligible. The predominant resources in the digital economy are knowledge, information and ideas. Important in this context is a novel approach of Webonomics which is concerned with the study of production, distribution and consumption of products, services, and ideas via the Web Š1Ë. The interactive relationship between the firm and its external stakeholders is very important here. It means an increasingly intensive networking. The managers make business decisions in an environment characterised by a network infrastructure, both the hardware and the software used in the communication. Cellular communication means new opportunities offered by media convergence. A growing portion of economic value in the digital economy is the result of electronic devices. New rules of the game demand speed, flexibility and innovative ness. Traditional firms have to change their strategic orientation and business operations in order that they should remain competitive in the changed conditions and with new electronic infrastructure. The origins and development of the digital economy are based on the expansion of the knowledge industries and the implementation of information and communication technologies (ICT). The informationbased firms known as soft companies increase their share in value creation in a large number of economies. This predominantly applies to the firms engaged in the production of software, telecommunications, financial services, advertising, and media. 2. Dynamic approach to competitive strategy creation and implementation From the point of view of increasing competitiveness, the concept of strategy refers to the guidance of the firm in the conditions of competition in order that the firm should achieve competitive advantages, not only as regards the customers or users of services, but also as regards anything that can ensure advantages on the home or export markets. In case of the entrance on the electronic market, the firms prospects are better if managers develop a competitive strategy bearing in mind the complexity of change brought about by the digital economy. The leading companies in the world today implement different strategies. Generally, however, the companies achieve competitive advantages vie innovations in a broad sense, ones that can be manifested as a new product / service, new technology or a new marketing approach, where innovation is mostly derived gradually. In the international market conditions, the innovations that result into competitive advantages are often anticipated by the needs that arise both at home and abroad. Here the role of information in the innovation and renewal processes is essential, especially the information that is not available to the competition or that competition does not seek. Besides, when the firm achieves a competitive advantage via innovation, it can remain competitive only through permanent improvement, since it is a well known fact that any innovation can be imitated. It is in this way that the firm remains competitive on the foreign market as well. Hence creating permantent advantage often means that the firm has to make all its existing advantages obsolete, otherwise, the competition will do it. Thus innovation and change are connected. The issue that merits special attention here is that of the production factors whose available quantity in a defined time is less important than the rate and the efficiency with which these factors are created and improved in certain industries. This primarily includes highly significant factors today, such as scientific base or skilled human resources. Importantly, the absence of advantage in the static competition model may become an advantage in the dynamic one. When, for example, the firm encounters some difficulties, such as high prices or lack of a certain resource, it often has to introduce innovation and to improve its operations in order that it should be competitive again. Creativity also has an important role in achieving competitive advantage. Three components: expertise, creative thinking skills and motivation overlap to result into creativity that generates the key success factors of a certain business Š2Ë. The dynamic approach assumes that formulating and implementation of a competitive strategy is a continually evolving process of prompt adjustment to a changing environment, since the condition in the external environment often change before a selected strategy has been fully implemented. Such a dynamic process involves three independent and simultaneous cycles related to the analysis of competitive environment, development, the analysis of alternative strategic options, and the analysis of the very translation of the strategy into practice. The solution is found in formulating new strategic approaches, continually, throughout the process of the firms adjustment to a dynamic competitive environment, as well as in changing the strategies in the course of their implementation. Most relevant in this process are an efficient strategic guidance, especially strategic vision, pragmatism and communication networks. These result into a new strategic challenge from the managerial aspect. The change in the business processes themselves in the concrete conditions of a turbulent environment is complex. It is in this context that the concept of a learning organization must be taken into account. It is important that the competitive environment should continually be studied in order that the signs of demand saturation, technology substitution, changes in the consumption structure and social discontinuities should be timely identified. If there are any signs that a market will cease to be profitable in a future period, the firm will seek an opportunity on another, broader, home or exports markets or in a market niche. The insight into the dynamic nature of a competitive environment means focusing upon its essential aspects that are changing, as well as analysing whether these changes are strategically relevant. The following step is to survey individual impacts and a structural analysis to identify the key forces in the external competitive environment. Thus we can identify and analyse the competitive position of the firm as related to other organizations that compete for certain resources, or offer their products/services to the same customers. Here the competitive analysis of a strategic group is implemented in terms of similarities or differences between the competitiors, as well as in terms of the market share analysis. The final step is the analysis of whether any opportunities or threats are identified from the aspect of the future business of the firm, namely, whether the strategy and structure are adjusted to the development in the external environment. It is in this way that we get an insight into the environmental impacts which is important in the strategy analysis, as strategic decisions in the digital economy are predominantly made in the conditions of uncertainty. The aim of the change of strategy is to identify the strategic gap that defines the disparity between the current strategic position of the organization and the positions defined by each individual strategic options, as well as to set the timing of implementation of the selected form. Generally, the process of changing the competitive strategy is important because it shows a particular strategic option that may result into a most favourable position for the firm, as well as whether this strategy can be translated into practice within the given period of time. The advantage of a dynamic strategy formulation is in a constant review of varieties/types and identifying the strategic gap, thus eliminating potential threats in taking new opportunities. All these require that, in case of the dynamic development of a strategy, the mental models reflect the com plexity of the real world which results into a continual adjustment process. Here the soft data are as important as the hard data, since they tell us about the firms values, principles, identity and challenges. It is important to note that managers also use heuristic methods, due to the type of uncertainty inherent to strategic problems. In order to be successful, the organization has to create value for its customers/service users and other stakeholders is a distinctive manner, through competitive positioning and integrated service it offers. In this context, the competitive strategy can be defined as a value creation skill that ultimately allows for the managers to identify the opportunities to create value for their customers and earn profits. Various factors work within the business networks frame and jointly create value in new forms, which implies an entirely new value logic in the digital economy conditions. Here the importance lies with the firms competencies, primarily the technology, the implementation of information and comunication technology, specific expert knowledge and new business processes accumulated over time and incorporated into the offer package of the firm. In the conditions of fierce competition, it is important that the customer is willing to buy the firms products, but also to pay for them, which includes the possiblity of electronic payment. Hence an important advantage of any firm is its established customer database. An increasing number of firms involve their customers into the product design process in order to view their needs from the real world. This often means an integration of marketing and research and development funstions Š3Ë. To measure the competitive strategy efficiency the indicator related to profitybility per customer is also used. 3. Relevance of knowledge as resource Knowledge management is of utmost importance when it comes to achieving competitive advantage. Knowledge exchange and implementation have in the last years been identified as key sources of sustainable competitive advantage. Improvement and strategic choice mean learning something new, especially in teh conditions of a fast changing business environment characterised by a modern, knowledge-based economy. In this paper we especially focus on the Balanced Scorecard (BSC) as an important new method to measure the firm performance Š4Ë. The implementation of the BSC is especially interesting from the point of view of an increasingly important role of knowledge as an intangible resource that often results into impor tant innovation and here the BSC allows for a comprehensive insight into the business results from the innovation and learning aspects Š5Ë. In order to increase competitiveness in the conditions of permanent changes characterised by the development of digital economy the firms should open their boundaries wide in the learning process, stimulate the exchange of ideas via project teams and meetings with customers and suppliers, which all help the firm identify competitive opportunities better. In the conditions of such supportive, open environment, we find a positive practice of developing learning forums such as strategic study of a changeable competitive environment; the product/service portfolio; technological change and the firms market position; interfunctional processes and delivery systems analysis; the study of competitive strategies of the most successful companies for the purpose of better understanding of their distinctive competencies, changes in the marketing mix tools, the resulting increase in the market share and capturing of new markets. From the point of view of creating competitive advantage it is important that the employees should be encouraged to be creative and innovative in mastering new and more successful methods of production or service delivery to customers. Innovation may result in lower costs, differentiation and faster response to oppotrunities and threats from the external environment, which stresses the core organizational competencies and capabilities. The realization of competitive advantage is facilitated by good internal and external communications without which the organization cannot learn the best practical solutions. The organization learns about the need to change on the basis of observation and interpretation of the events in the environment where the external stakeholders are the state with its economic policies, the financial institutions, suppliers, customers, competition. It is on this basis that managers make decisions on the activities they should undertake, followed by the execution of necessary changes. These changes in turn affect other organizations (competition, suppliers, customers) in a situation some authors call the environment of competitive chaos. They interreact in a feedback and the firm learns again of the impact and output of its decisions. Hence it is clear that learning is essentially important in the competitive strategy formulation and implementation. From this point of view, it is necessary that the role of management consulting be awarded due importance Š6Ë. Generally taken, what goes on outside the firm has a larger impact upon the firms competitiveness than ever before. This external world full of challenge increasingly involves products and other substitutes, changes in economy and good market, the results of the operations indirectly related to the firm and new ways of peoples behaviour, including new ways of communication via the Internet. Information and communication technologies evidently affect all the above mentioned. In the conditions of digital economy the customers enjoy access to a larger number of information, there is a strong feedback, and they become more demanding. These changes surely can inspire opportunities for the achievement of future competitive advantage. As a specific managerial tool, the competitive intelligence (CI) is of special importance for in the managers proactive operations as regards the competition Š7Ë. It provides him with a timely insight into the changes in the external reality. The competitive intelligence actually means the knowledge of the overall environment and provides activity-oriented answers to the managers who make strategic decisions concerning competitive positioning in the future , where it is necessary that they should be prepared for a variety of aspects of business doing different from what they are used to, and in strategic management this may mean new ways of thinking based on the look at the outside. This may result in activity, that is, in the firms business operations that competition either does not expect or does not recognize clearly enough. 4. Competitive advantages in the conditions of digital economy A fast ICT development resulted in the change in the way the goods are produced and the services are delivered, the nature of products and services themselves as well as in the distribution channels. In the last decade, the digital economy has been an important driver of structural changes and economic development in industrial countries and in certain regions Š8Ë. Numerous sectors of economy are being transformed through a fast development, adoption and implementation of innovation from the information and communication technology sphere. Especially striking are the changes in the field of the expanding service provision. From the point of view of the firm and the economy in general, the impact of ICT is primarily felt in reducing transaction costs. In case the ICT clusters are formed, the firms location is also becoming important. In creating an appropriate competitive strategy in the conditions of the digital economy the managers should analyse the firms position as regards the competition in the sphere of electronic business. Also important is the decision on what should be an adequate role of electronic business in traditional companies. The firms competencies in the field of information and communication technologies, as well as the needs for financial resources have to be analysed thoroughly. The developments in the field of cellular telephony are expected to be spectacular in the future. From the competitive strategies perspectives, the classification of business in the new economy, based on the physical/digital characteristics is also important Š9Ë. The product may be physical or digital, the process, too, may be physical or digital, and so may be the case with the mediator. This results into nine different types of business, from those purely physical, to fully digital business types where the product itself, the process, the delivery and the payment are digital. The use of the Internet in the digital economy has led to a change in the configuration of certain jobs, as well as to a balance between producers, mediators, and customers. Characteristically, the customer becomes the king of new economy Š10Ë. Thanks to the Internet, he is very well informed on the offers of a variety of manufacturers, or service providers, at relatively low costs of searching, which enables him to make fast comparisons and choose the most appropriate product of a quality, design, and price that he finds appropriate, even in global conditions. Doing business on the Internet includes not only buying and selling, but also delivering services to customers and cooperation with business partners. It is differentiated in comparison with the traditional way of business doing also in that it eliminates the problem of time difference and geographical distance between the business partners in terms of goods ordering and payments; in case of certain products it applies to the delivery as well. It is in this way that the boundaries of business are expanded to electronic products. From the economic aspect, however, it is important that the return on investments in electronic commerce be higher. The customers should be offered higher quality products adjusted to their needs, at lower prices and with higher qualty services. Here we need an appropriate software that helps maximise the effectiveness via a new method of business doing. Its advantages are in the improvement of quality, activity, the additional services, on one hand, and in the reduction of costs and sales prices, shortening the time cycle, or transaction, on the other, which is especially important in the conditions of the global economic crisis and recovery. Also important is the managerial decision making in the domain of pricing Š11Ë. lately Characteristically, many companies have achieved a considerable business success implementing, alongside the traditional business, a new model of electronic commerce. A typical example is a well-known American retail company, Wal-Mart Stores Š12Ë. The networking equipment market is characterised by a fierce competition globally. The example of AlcatelLucent is illustrative: among the sources of competitive advantages the company gives priority to technological improvements, product and service quality, a reliable and timely delivery, competitive production costs, flexible production capacities, local attendance and long-term relations with customers Š13Ë. An important factor of differentiation as regards the competition in the conditions of recession may be a desire and competence to offer certain forms of financing. Within its strategic orientation the Samsung company advocates a Smarter Life Concept, especially in Europe. The concept is based on smart design that improves the functionality of the products for the customers, on smart experiences and smart connections that will ensure that the Samsung products can interconnect automatically, share the contents and improve customer experience Š14Ë. It is important to note that, contrary to the previous failures of a large number of dot.com firms following the initial boom, the pure dot.com strategy proved successful in many cases nowadays. This is also characteristic of many an on-line auction. New business strategies on the Internet focus on the importance of information. Economic information is fundamentally different from the economic thing. When a physical product is sold, it is not owned any longer, whereas information retains ownership after the sale and can be sold again. A physical thing can be replicated, however, this costs as much as manufacturing the original. On the other hand, the costs of multiplying information are really low, even taking into account the initial costs of research, development, experimenting, and testing. While things wear off or are spent in time, information may become obsolete, however it may gain in value through use. It is evident that tangible products exist in time and space, and that they can be counted or kept in stocks, while information can be found anywhere and at any time Š15Ë. The synergy effects in the cooperation between firms were recognized at the first European B2B Internet market for commodity industries in 2000. It was initiated by the Nestlé and Danone group companies as leaders in the food industry, and was further established by Henkel and SAP Markets on mySAP.com ebusness platform Š16Ë. A growing portion of economic value in the digital economy is the product of electronic devices. In the new economy which is dynamic, global and networked, the most important competitiveness factors are innovations, product and service quality, time and low costs. From the economic aspect, it is important that marginal production and distribution costs for digital products are very low. This refers to software, music, electronic books and magazines, films. The importance of connectivity enabling innovation and technologies increases, since communications are the basis of on-line business. Certain authors use the term click-here economy, linking it to a broader choice of customers due to the Internet use. The same logic can be applied to the business related to the transactions between two organizations B2B (business-tobusiness), where electronic catalogues and direct electronic connections change the supply practices of the firm. All the above analysed show that understanding that the Internet customer is an entirelly new entity for whom on-line behaviour is typical makes the crucial first step in creating a competitive strategy. In the case of new customers the subject of their purchase (tangible and electronic products), the reason and the manner in which they make their purchases change. In an interactive communication with the company on the Internet they express different expectations. Here the expression Market is conversation gets its full meaning. The customers expect a product or a service especially adapted to them in the customation process. Besides, they can buy comfortably seated in their rooms or offices, 24 hours a day, 7 days in a week, which is in the digital world known as 24x7. In case of alternative competitive electronic business strategies, practice has shown that managers often create strategies that, starting from the model of generic competitive strategies proposed by M. Porter, simultaneously follow the orientation towards low costs, differentiation, and focusing Š17Ë. In their relevant and quite unique approach, A. Hax and D. Wilde propose a new framework for generic strategies in the conditions of modern, knowledgebased, global economy the Delta model in the form of triangle whose three tenets represent three types of new strategies: the best product, solutions for customers, and connections Š18Ë. The strategic option of developing the best product is related to the traditional sources of competitive advantages on the basis of lower costs in comparison to competition and differentiation. The second strategic alternative is developed in case of a broader concept of offer of a product or a service that meets the majority of or even all customers needs. The focus here is upon the customer, rather than a product. This is largely viable due to the possibility of direct communication with customers via the internet. From the aspect of a successful design and implementation of this strategy the relationship marketing is very important. The firm tends to provide a related group of products and services aiming to increase the customers ability to create their own econimic value. The innovation process is oriented towards a joint approach (with customers) in the development of distinctive products and building and maintenence of a long-term relationship with them. The broadest range is the one belonging to the third strategic option which starts from the systems approach to business, taking into account all those who contribute to the economic value creation. The resource-based strategic concept primarily deals with with the problem of how the firm can provide the factors necessary in creating core competencies that make the basis for establishing sustainable competitive advantages in the complex process of strategy implementation. Strategy is also understood as a function of quality and quantity of the firms competencies without which it is basically powerless. The newly established relationship between firms of various sizes, their cooperation and networking resulted into the generation of a new mental space as well as into the implementation of genuine business models on a global basis. The development of business connections leads to innovation outsourcing practice too. Besides, innovative processes require flexible and customized responses and answers, a continual experimenting and testing. In the conditions of digitalization the products are increasingly made to order, and information is highly personalized Š19Ë. One of the key words of the new strategic approach is the strategic framework whose typical features are non-linearity, changeable boundaries of the firm, holistic understanding of the business, involvement into industrial clusters, openended innovation and a continual review of business models. The analogy with biology via understanding the business ecosystem, as well as the analogy with physics via energy related categories are inspiring. Also relevant is a recent poised strategy approach and the adequate method of performance measuring Š20Ë. The poised strategy is connected to the firms dynamic competence the basis of which is a specific way of thinking, the managerial skills of balancing, as well as the organizational competence to energize, revitalize and change itself. Such an organization is characterised by a creative energy and dynamics through movement in different or newly created conditions. In practice, the poised strategy means a larger number of business models in order to realize the innovation of values for the product buyers or service users that the firm offers. The incremental and penetrating innovation competencies in business networks understood as eco-systems are also important. The capacity space, as a specific type of mental space, includes the attitude towards resources, competences and dynamics of innovation, and is especially important when a manger focuses upon improving competitiveness. The intangivle intellectual assets have be come crucially important as a competitiveness factor at the beginning of the 21st century. The committment to study, to knowledge acquisition and sharing is immanent to innovative firms. The networking of knowledge is a process running both inside and outside the company, with open-ended innovation processes. The poised strategy focuses upon a specific rejuvenation of the firm, via a challenging dynamic re-energizing based on manifold business models in varied business eco-systems connected to a large number of business competencies, suitable for multidisciplinary and multidimensional knowledge, with adopting appropriate impacts, which basically is a vitalistic approach to business and its organic connections. Especially challenging for the companies oriented towards innovation-based competitive advantages creation are issues related to human resources recruiting and development of innovators who will create an important invention as a turnpoint in the developmental sense, since talent is a rare resource. The estimates are that only 5-10% managers with high potentials in modern corporations command the skills and capabilities to become innovators in any given period of time Š21Ë. In a large number of manufacturing and service industries, the creation of a powerful base of talents in the company and the building of intellectual capital are considered to be crucial for a satisfactory implementation of a competitive strategy and achieving planned goals. Many successful companies conduct intensive processes of talent management. These initietives may result into the creation of a specific innovation node from whose perspective the innovators will have a better insight into how the existing products, services, ideas, human resources or the entire business may be recombined in new, value adding ways. IBM, The analysis of the Bloomberg Businessweek list of the most innovative companies in the world in 2010 has shown that the top 12 were the following: Apple, Google, Microsoft, Toyota Motor, Amazon.com, LG Electronics, BYD, General Electric, Š22Ë. Importantly Sony, Samsung Electronics, Intel enough, the list contains a large number of Asian companies, innovative in global aspects. The majority of the companies listed rank among the most competitive companies in terms of their offer on the global market and as concerns the demands of digital economy. It is important to stress that the sixth best dot.com company is the Amazon.com company which has successfully implemented both the diversification strategy and the competitiveness improvement strategy on the basis of certain categories of cost reduction. The highest income growth rates among the top 12 in the 2006  2009 period were achieved by BYD (42%), Google (31%), Apple (30%), and Amazon.com (29%). The strategic orientation of the Apple company includes its committment to the best consumer experience of their customers through innovative hardware, software, computer peripherals, services and the internet offer. The focus is upon the companys competence to design and develop its own operating systems, hardware, application software and services in order to deliver new products and solutions with a superior userfriendliness, compatibility of the new software versions and an innovative industrial design Š23Ë. It is in this way that from the competitive point of view new concepts are implemented, ones that have been presented in this paper and are relevant in the conditions of the digital economy. Especially important is the fact that the Apple company is successfully positioned in comparison with the competition, that it offers superior and well integrated solutions related to what in the recent period is understood as a digital lifestyle, and, which is especially important, to efficiency improvement. Building competitiveness largely depends on the ability to ensure a continual process of introducing innovative products and technologies on the market. The Apple company is known for its design and development of almost complete solutions for their products, including hardware, operating system, numerous software applications and integrated services. Such a strategic orientation implies substantial investments into research and development, amounting to $ 1.1 billion in 2008; $ 1.3 billion in 2009; reaching $1.8 billion in 2010 Š23Ë. Besides, the company is oriented towards achieving competitive advantages in the area of cellular communication and media devices, including iPhone and iPad. This is a highly competitive industry where a number of large, experienced and recognized companies work and the competition is expected to grow fiercer still. Achieving competitiveness largely depends on the ability to place new products with high profit margins and in a longer term. 5. Conclusion The digital economy with developed knowledge networks bears manifold implications on managerial strategic thinking that results into new approaches and manners of formulating a competitive strategy, as well as into the strategy implementation processes. Especially important is that this should provide results in the firms business practice, as well as help respond to the challenges and take opportunities of further development using the advantages of new electronic infrastructure. Markets are in many cases characterised by a frequent introduction of new products and services, as well as by fast technology improvements. Low costs and sales prices, especially in the conditions of the economic crisis and recovery remain important competitive factors, however, the product characteristics such as quality and reliability, innovations related to design, marketing competencies, service and post-sales support, the brand name and the company reputation are important too. Fierce competition is characteristic of a large number of business domains in the conditions of digital economy. 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Ecological Footprint as Indicator of Students Environmental Awareness Level at Faculties of Organizational Sciences, University of Belgrade and University of Maribor UDC: 502.12 ; 37.033:504.06 Nataša Petrović1, Sonja Išljamović2, Veljko Jeremić3, Drago Vuk4, Marjan Senegačnik5 1,2,3 Faculty of Organizational Sciences in Belgrade 4,5 Faculty of Organizational Sciences in Maribor The Ecological Footprint is a complex sustainability indicator that answers a simple question: How much of the Earths resources is demanded to support humankind lifestyle and activities? Ecological Footprint translates consumption and waste flow data into a measurement of the biologically productive area required to sustain that flow. We used Ecological Footprint as input feature that provides an effective heuristic and pedagogic tool for capturing current human resource use. The key aspect of this paper will be focused on the measuring of environmental awareness level among the students of the Faculty of Organizational Science, University of Belgrade and University of Maribor. For the determining students environmental awareness level and their Ecological Footprint, we used a closed form questionnaire with 15 questions. Statistical analysis has been performed in SPSS software package. 1. Introduction Human economy depends on the planets natural capital that provides all ecological services and natural resources. As a result of population increase and economic development, humans have exerted a considerable impact on the earth and are facing a series of incompatibilities among the natural resources, environment, and economy, such as the dichotomy of population growth and depression of resources and environment deterioration. It is required a new concept of development one which is sustainable and which takes into account the satisfaction of the needs and wants of every citizen of the earth, of the pluralism of societies and of the balance and harmony between humanity and the environment. The implication of this ecological situation is obvious: to be sustainable, human beings must live within natures carrying capacity; and they must measure where they are now and how much further they can go, Š32Ë. Significant changes must occur in the entire world to assure the kind of rational development changes which will be directed towards an equitable distribution of the worlds resources and more fairly satisfy the needs of all peoples. This kind of development will also require the maximum reduction in harmful effects on the environment, the utilization of waste materials for productive purposes, and the design of technologies which will enable such objectives to be achieved, Š25Ë. The reform of educational processes and systems is central to the building of this new development ethic and world economic order. Recommendation 96 of the Stockholm conference on the Human Environment called for the development of environmental education as one of the most critical elements of an all-out attack on the worlds environmental crisis, Š33Ë. The goal of environmental education is to develop a world population that is aware of, and concerned about, the environment and its associated problems, and which has the knowledge, skills, attitudes, motivations and commitment to work individually and collectively toward solutions of current problems and the prevention of new ones. Environmental education means a brand-new style of life, new ethical and cultural values and responsible persons. Environmental education can be defined as learning to protect and improve environment in a systematic, planned and knowledge-based way during the whole human lifecycle in order to spread awareness about basic characteristics of environment, its structures and relationships that tends to make a human protect and improve environment in a way that will ensure humans existences now as well as in the future, Š16, 17. 18, 24Ë. The one of key characteristic of environmental education is action because environmental education has to promote civic responsibility, encouraging learners to use their knowledge, personal skills, and assessments of environmental problems and issues as a basis for environmental problem solving and action. Because of these, occurs a need for an adequate measurement of these environmentally sounded actions, and as a good tool for this measurement it can be taken environmental indicator Ecological Footprint. Ecological Footprint (EF) is used to translate consumption and waste flow data into a measurement of the bio logically productive area required to sustain that flow. In this research Ecological Footprint was used as input feature that provides an effective heuristic and pedagogic tool, at courses of Environmental Management and Technological Systems and Principles of Ecology, for capturing current resource use of students of the Faculties of Organizational Science, University of Belgrade and University of Maribor. 2. Importance of environmental education The Belgrade Charter was adopted by a United Nations conference in 1976 and provides a widely accepted goal statement for environmental education: The goal of environmental education is to develop a world population that is aware of, and concerned about, the environment and its associated problems, and which has the knowledge, skills, attitudes, motivations, and commitment to work individually and collectively toward the solutions of current problems and the prevention of new ones.Š25Ë. A few years later, the worlds first intergovernmental conference on environmental education adopted the Tbilisi Declaration. This declaration is built on the Belgrade Charter and established three broad objectives for environmental education. These objectives provide the foundation for much of what has been done in the field since 1978: To foster clear awareness of and concern about economic, social, political, and ecological interdependence in urban and rural areas; To provide every person with opportunities to acquire the knowledge, values, attitudes, commitment, and skills needed to protect and improve the environment; To create new patterns of behavior of individuals, groups, and society as a whole towards the environment, Š26Ë. Environmental educations essence is in its role in the education for a sustainable future. Thats the reason why environmental education uses content from the environment, economy and society to organize learning processes that help understanding the evolution of human interaction with the environment through development, to analyze present realities, and to plan and participate in coherent processes of change toward a more sustainable future. This set of knowledge, skills and values, endorsed by representatives of all sectors of every society, is the framework for education for sustainability and the basis for much of the new curriculum planning taking place across the world. This kind of education (for sustainable development) is learner-centered, providing learners with opportunities to construct their own understandings through hands-on, minds on investigations. Learners are engaged in direct experiences and are challenged to use higher-order thinking skills. Education for sustainable development supports the development of an active learning community where learners share ideas and expertise, and prompt continued inquiry. Also, this education provides real-world contexts and issues from which concepts and skills can be learned. It recognizes the importance of viewing the environment within the context of human influences, incorporating an examination of economics, culture, political structure, and social equity as well as natural processes and systems. Through comprehensive, cohesive programs, learners explore how feelings, experiences, attitudes, and perceptions influence environmental issues. They become knowledgeable about natural processes and systems and gain an understanding of human processes and systems. They develop a sense of their rights and responsibilities as citizens, are able to understand the ideals, principles, and practices of citizenship in democratic societies, and they gain the skills necessary for citizenship, Š17Ë. The awareness, knowledge, and skills needed for these local connections, and understandings provide a basis for moving out into larger systems, broader issues, and a more sophisticated comprehension of causes, connections, and consequences. Education for sustainable development fosters skills and habits that people can use throughout their lives to understand and act on environmental issues. It emphasizes critical and creative thinking skills along with other higher level thinking processes that are key to identifying, investigating, and analyzing issues, and formulating and evaluating alternative solutions. The aim of good higher environmental education is to enable students to work in or lead interdisciplinary teams to find solutions, using environmental sciences and management methods, so that theyll be skilled to devise integrative environmental knowledge and management solutions for complex environmental issues on a regional, national and international level, for the private as well as for the public sector. What has to be offered in the program of good higher environmental education is interconnected with the wide range of requirements in professional life; therefore the program of higher environmental education is designed to meet these new sustainability challenges, by integrating inputs from the social and human sciences into the study of environmental planning and engineering, Š17, 18Ë. The focus is on how firms, governments, and other organisations can support sustainable development in an economically efficient and socially acceptable manner. Logical, the mode of teaching modes varies throughout the higher environmental education program and includes formal lectures as well as project-based individual and team studies, during witch students are asked to get actively involved in organisational and contents related aspects of the teaching program, giving feedback for a continuous advanced evolution of higher education for sustainable development and future, Š15Ë. 3. Ecological footprint From this point of view, struggle for ecological services and goods will play a most important function in the 21st century. All human activities require the use same property of earth - primarily biologically productive land, but also includes land used for buildings and roads, food production, the production of energy and material resources and land required for waste-disposal and the absorption of emissions. In the early 1990s the Ecological Footprint concept was created by Mathis Wackernagel and William Rees at the University of British Columbia Š20, 28, 29Ë, and nowadays Ecological Footprint become established as important environmental indicator. The Ecological Footprint tracks the area of biologically productive land and water required to provide the renewable resources people use, and includes the space needed for infrastructure and vegetation to absorb waste carbon dioxide (CO2). The Ecological Footprint is an accounting framework that tracks humanitys competing demands on the biosphere by comparing human demand against the regenerative capacity of the planet. In order to determine whether human demand for renewable resources and CO2 uptake can be maintained, the Ecological Footprint is compared to the regenerative capacity (or biocapacity) of the planet. Biocapacity is the total regenerative capacity available to serve the demand represented by the Footprint. Both the Ecological Footprint (which represents demand for resources) and biocapacity (which represents the availability of resources) are expressed in units called global hectares (gha), with 1gha representing the productive capacity of 1ha of land at world average productivity. The collective impact of this land consumption determines the limits for our local functions. The following Š9Ë: Biodiversity land, Bioproductive land (Arable land, Pasture land and Forested land), Bioproductive sea space, Built land, Energy land. Relying on Oslo Methodology, Ecological Footprint can be defined as, Š1Ë: a method for calculating and evaluating the environmental impact of the consumption of goods and services; an indicator that provides a simplified demonstration of significant environmental impacts from various types of consumption; a tool for environmental impact assessment when considering different alternatives in a political/administrative decision-making process, or for reporting on the state of the environment in a regions. The Ecological Footprint is a resource accounting tool that measures how much biologically productive land and sea is available on Earth, and how much of this area is appropriated for human use. The Ecological Footprint clarifies the relationship of resource use to equity by explicitly tying individuals and groups activities to ecological demands, Š30Ë. The Ecological Footprint analysis attempts to measure human demand on nature. It compares human consumption of natural resources with planet Earths ecological capacity to regenerate them. Calculating Ecological Footprint we make effort to measure how much biologically productive area is required to produce the yearly resource flows consumed by the residents of a region (a city, a country, or the world), to absorb wastes or emissions (especially CO2), and to host the built infrastructure in that region, Š4Ë. In future, the Ecological Footprint can be used in process of identifying and planning strategies, which can help us to succeed in a world of limited resources, and ensure their rational use. The world average of Ecological Footprint last year was 2.7 global hectares per person, while the Ecological Footprint of Europe was 4.7 hectares. The situation in Balkan is a little bit better, the lowest footprint is in Serbia (2.4 ghp), than it comes Bosnia and Herzegovina (2.7 ghp) and Croatia (3.7 ghp), and with highest Ecological Footprint in region has Slovenia with 5.3 global hectares per person, Š9Ë. 4. Results of statistical analysis 4.1. Results of statistical analysis for students of Faculty of Organizational Sciences, University of Belgrade Environmental Management course is taught at the third year of undergraduate studies at the Faculty of Organizational Sciences, University of Belgrade. Survey was conducted on 44 students (more than 40% of total number of students which is by all means a characteristic of a representative sample). Students answered on 15 closed-type questions and according to their responses, the EF value was calculated for each of them. Creation and evaluation of survey was based on the Global Footprint Network standard. After attending course of Environmental Management, students filled the survey papers once again. Our aim in this research was to determine whether there are or not significant improvements of achievement levels in action-oriented higher environmental education occurred. These improvements include the creation of new patterns of student behavior in their relationship with environment. focused on In order to evaluate results of survey, we used statistical software package SPSS 17. In the sample of 44 students, 24 of them were female students and 20 were male students. We first wanted to examine if female students are more ecologically aware then male students. Thus, we the variable EcoFootPrintBefore. Using Kolmogorov-Smirnov test, we determined that variable is normally distributed (Z = 0.790, p>0.05). In respect to these results, we used parametric t-test for independent samples. Mean value for female students was 1.216 ± 0.128, while mean value for male students was 1.21 ± 0.148. Results showed no significant difference between genders, t(42) =-0.160, p>0.05. Very important issue that we wanted to raise is possible difference between genders in answering on each of the 15 questions. Chi-square test of categorized data was performed and results showed that there is no statistically significant difference between male students and female students. This result is at least unexpected, so we will emphasize couple of interesting observations. We used Chi-square statistics in order to examine whether male students and female students differ in the number of new clothing items they buy. Results showed no statistically significant difference between male students and female students, (χ2=1.381, df=3, N=44, p>0.05). Same conclusion was made comparing variables What is the percent of food you throw away and what percentage of food you buy is locally grown or seasonal. Results implied no statistically significant difference between genders (χ2=2.151, df=2, N=44, p>0.05; respectively, χ2=2.631, df=3, N=44, p>0.05). Observing, how much meat and meat products students buy, we conclude that there are no significant differences between males and females. Unfortunately, both male and female students are not dedicated to the trend of healthy and organically grown food, which is in Serbia still not widespread, but it is expensive. Their diet is mostly based on meat products, and the result show that 72% of students in their daily diet consume meat products, and that implies low level of ecological perception in food consumption of students and their families. As a next step, we wanted to examine possible correlation between GPA (Grade Point Average) and the EF value of students. Knowing the fact that both of the variables are normally distributed, Pearson correlation was used. Result indicated that there is no significant correlation between these two variables, r=0.264, p>0.05. This result implies that environmental education (with consequential environmental actions) does not depend on formal educational system in Serbia, because (based on educational curriculum and programs), it is evident lack of formal and permanent environmental education at all levels of formal education in Serbia, Š21Ë. Further on, we wanted to explore potential association between number of rooms (space of apartment) and number of rooms that are being heated during winter and cooled during summer months. Knowing that we are examining nominal types of variables, Spearmans rho correlation coefficient was calculated, rs=0.486, p<0.05. Positive direction of correlation indicates that bigger apartments (flat) imply higher number of heated rooms. On the other hand, there is no statistically significant correlation between space of apartments and number of cooled rooms, rs=-0.031, p>0.05. 4.2. Results of statistical analysis for students of Faculty of Organizational Sciences, University of Maribor Survey was conducted on the sample of 43 freshmen students at Faculty of organizational sciences, University of Maribor. In the sample of 43 students, 28 of them were male students and 15 were female students. We first wanted to examine if female students are more ecologically aware then male students. Using Kolmogorov-Smirnov test, we determined that variable is normally distributed (p > 0.05). In respect to these results, we used parametric t-test for independent samples. Mean value for female students was 1.777 ± 0.257, while mean value for male students was 1.919 ± 0.226. Results showed no significant difference between genders, p>0.05. The issue that we wanted to search is potential difference between genders in answering on each of the 15 questions. Chi-square test of categorized data was performed and results showed that there is statistically significant difference between male students and female students on couple of questions. For instance, males and females significantly differ on frequency of car using (LI = 6.286, df = 2, p<.05). Same finding applies for question What is the fuel consumption of the car you travel in most often, statistically significant difference was noted (LI = 12.440, df = 3, p<.01). Our results implied that male students use car far more frequently then female stu dents. In addition, they more often use car with high fuel consumption. Further on, we used chi-square statistics in order to examine whether males and females differ on how much pieces of new clothes are bought by students. Results showed no statistically significant difference between male students and female students, (χ2 = 5.807, df=3, p>0.05). Same conclusion was made comparing variables How much percent of food you throw away and how much percent of food that you buy is locally grown or season food. Results implied no statistically significant difference between genders (χ2=1.273, df=2, p>0.05; respectively, χ2=2.927, df=4, p>0.05). Afterwards, we wanted to examine is students environmental awareness influenced by their parents educational level. Nonetheless, results implied that there is no significant difference between students ŠF (2, 39) = 0.506, p>0.05Ë. In addition, we wanted to examine if students coming from smaller towns are more ecologically aware than their colleagues from Ljubljana, capital of Slovenia. In our sample, 18 of them were from Ljubljana and 24 were from other cities (one student didnt answer the question). Using Kolmogorov-Smirnov test, we determined that variable is normally distributed (p>0.05). In respect to these results, we used parametric t-test for independent samples. Mean value for Ljubljana students was 1.954 ± 0.249, while mean value for students coming from smaller towns was 1.825 ± 0.215. Results showed no statistically significant difference between students of different hometown, p>0.05. Only difference between students coming from Ljubljana and other cities was in the question How far do you travel by car each week, (LI = 17.093, df = 4, p<.01). 5. Conclusion Comparing the Serbia (2.3ghp) and EU (4.7ghp) results, value of students EF is 1.21 ghp, which represents an impressive achievement pointing to a high level of environmental awareness amongst Serbian students at Faculty of Organizational Sciences - University of Belgrade. Although results didnt reach a significant statistical difference between genders, it is obvious that male students are more dedicated to environmental issues and protection. High level of environmental awareness amongst students does not depended on formal educational system in Serbia (it lays in adequate good higher environmental education, and knowledge absorbed from Environmental Management course), because it is evident lack of formal and permanent environmental education at all levels of formal education in Serbia. We can conclude that environmental subjects must be in cluded as a basic one at all level of Serbian formal education. Further on, must be emphasized that both male students and female students are not dedicated to the trend of healthy and organically grown food, which is in Serbia still not widespread, but it is expensive. Their diet is mostly based on meat products, and that implies low level of ecological perception in food consumption of students and their families. Course of Technological Systems and Principles of Ecology, taught at the first year of undergraduate studies at Faculty of Organizational Sciences - University of Maribor, enrolls a little bit more than 100 students. Our research is based on the sample of 43 students, which is by all means a characteristic of a representative sample. Average value for the EF of students is 1.869 ghp. Comparing to Slovenian (5.3ghp) and EU (4.7ghp) results, this represents remarkable achievement which proves high level of environmental awareness amongst Slovenian students. In the core of these impressive results, lays adequate and permanent environmental education, and knowledge absorbed from above mentioned course. In recent papers, it is often cited that level of parental education is significantly correlated with childrens environmental awareness. However, in our research no significant difference between students with different parental education background was noted. This finding clearly shows that Slovenia has excellent educational system concerning environmental issues, especially in elementary and high school. Also, results showed that female students are ecologically more aware than male students. Although, results didnt reached statistically significance, trend that female students are far more dedicated to environmental protection is obvious. In particular we have to mention results concerning issues of car using. As the matter of fact, results implied that male students use car far more frequently then female student. Further on, they more often use car with high fuel consumption. In addition, our analysis points out that both male students and female students are dedicated to the trend of healthy and organically grown food. Also, their diet is mostly based on locally grown food, which implies high level of ecological perception and healthy life trend in Slovenia. The results of both studies and analysis emphasize the importance of environmental education. In order to this, we can conclude that higher education institutions have to contribute to further development of environmental awareness and formal environmental education, by achieving following goals: Acquire skills, assess and apply complex management concepts in order to solve todays and tomorrows environmental challenges.  Gain knowledge in environmental sciences and their practical application. Train soft skills by working in international and in terdisciplinary teams. Combine a theoretical orientation with practical project work. Give a range of practical techniques in such areas as environmental planning, environmental policy, environmental management systems (EMS), modeling, geographic information systems (GIS) and data management. 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New Society Publishers, Gabriola Island, Philadelphia. Š31Ë Wackernagel, M., White, K., Morgan, D., (2006): Using Ecological Footprint account, International Environment and Sustainable. Š32Ë Wei, X., Li, Z., (2009): Ecological value at risk: The temporal analysis of the emergy ecological footprint and biological capacity in Gansu, China 19802020, Ecological Economics. Š33Ë http://www.unep.org/Documents.multilingual/ Default.asp?DocumentID=97&ArticleID=1511&l= en. Retrieved December 22, 2010. Decision Making Criteria for Outsourcing or Onsourcing of IT Service Provision in Public Sector UDC: 005:351.076(497.4) ; 007:004Ë:658 Dalibor Stanimirović, Mirko Vintar Institute for Administration Informatization, University of Ljubljana, Faculty of administration, Šdalibor.stanimirovic¿fu.uni-lj.siË, Šmirko.vintar¿fu.uni-lj.siË XII International Symposium SymOrg 2010, 09 - 12 June 2010, Zlatibor, Serbia The study focuses on the uncharted area of the Slovenian public sector. It uses an in-depth analysis of the contemporary pro et contra arguments and presents the research findings concerning IT outsourcing and insourcing in the Slovenian public sector. Regardless of the fact that state governments have always been purchasing some goods and services on the external market, the last two decades have shown an exponential growth of competitive tendering and outsourcing as a powerful tool of public management. In Slovenia, the use of competitive tendering and outsourcing of IT services has been growing rapidly, many will say unfoundedly and irrationally; the reported expenditures on contracting out in the public sector in the last years have doubled reaching in the time of global economic and financial crises, roughly estimated, tens of millions of euros. The research outlines some methodological, contextual, procedural and other aspects and considerations and eventually presents Saatys multiple criteria decision model for planning IT outsourcing and provides guidelines on critical assessing IT outsourcing projects in the future development of the public sector and its services in Slovenia. 1. Introduction The global social changes in the last three decades have initiated the need for reforms in both the private and the public sectors. The social, economic and technological development pressured the public finances and raised numerous issues on an efficient, transparent and earmarked spending of assets. The public sector is facing difficulties especially in three fields of its operation: global developmental trends and their growing pressure upon accounting expenditures, growing expectations of citizens as regards the offer of public services, despite fiscal restrictions, and an alarming demographic situation in which an already numerous population of retired persons grows by far faster in comparison with the creation of new jobs for the unemployed and the active population entering the labour market. All these result in a large financial burden when it comes to payments of pensions, offer of health care services and other public services. The above-mentioned events initiated some speculations on the type and scope of rights and services that should be offered by the public sector in a situation characterised by so restrained resources of public finances. It is but for these financial problems in 1980s that a convergent development of technology and administrative and economic sciences led to the forming and implementation of new business strategies in the public sector. The public sector started using certain managerial instruments to reduce operations costs and improve efficiency in the first place, although the use of these instruments in the past was exclusively the characteristic of the private sector. The situation described above resulted in performing some jobs from outside, i.e., outsourcing1 (English: outside source using) which means: by concluding a contract by which a specialized contractor outside the organization is assigned to perform some services and business processes which were primarily the liability of the public sector. It is in this way that outsourcing has become a major feature of the strategic development of the public sector. As well as the private sector, the public sector too started to transfer jobs to outside providers who provided public services in most diverse areas of social life based on the contract concluded with the public sector organizations: municipal utility works, social and health care, education, infrastructure maintenance, to even prisons and military issues. It did not take long, 1 Here it is necessary to mention that, when talking about outsourcing in a strict sense, we primarily have in mind an outside provision of certain business processes or services, however, still within the boundaries of the country in which the organization that transferred some processes to outside providers, works; when talking about outsourcing in a broad sense, we think of the transfer of business processes and services to entities in some other country. In such cases, the terms offshoring or dislocalisation are often used although they have no direct connections with outsourcing in the public sector. In this paper, outsourcing will be primarily studied in its stricter sense, namely, withing the countrys boundaries. For either outside or inside performance we use the English terms outsourcing and insourcingwhich are equal in meaning; namely, both terms are part of very rich Anglophone economic terminology. however, for the enthusiasm for these so-called revolutionary invention to expire. Already in the 1990s, according to the research of numerous experts, more than 75% organizations were dissatisfied with the inefficiency of outsourcing and poor results, and more than 50% organizations that practiced outsourcing tried to recover the provision of services and business processess, once outsourced, to their own organization Š1Ë. Organizations were unanimous in compalining about an unpredictable rise in costs and an ever poorer quality of services provided by outsourcing. The lack of an adequately critical and analytical approach in identifying the real needs for outsourcing has often left organizations in rather difficult positions, sometimes even to the brim of survival and worse. Trying to achieve short-term benefits, organizations endangered their long-term survival and made further development, as well as accomplishment of their visions and strategies, impossible. The negative experiences that accumulated for thirty years in the outsourcing area have in the last years reached a critical point and caused a turn back, or a return to insourcing certain business processes and services. In addition to the analysis of outsourcing and insourcing strategies, the paper focuses primarily on the study of outsourcing and insourcing of information-technological services (hereinafter: IT services) in the public sector and the criteria such decisions are based on. The prevailing scientific paradigms in this field by no means approve of the outsourcing of key business processes, especially in the public sector and argue that focusing upon the fundamental activities of the organization and upon key tasks is becoming a strategic feature of the modern organizational development. Finally, in the context of the abovementioned, it is necessary to take into consideration the insourcing of certain business processes and IT services that have so far been left to outside providers and that proved to be an instability and dysfunction factor in the long-term, since outsourcing of certain business processes led to the so-called hollowing out effect2 on the organizations which means that transferred jobs had a decisive impact upon losing some crucial competences and potentials of the organization and hence upon an inefficient performance of the key organizational tasks. Our topic of interest in this study is the interdisciplinary area of IT services outsourcing and insourcing in the public sector, that is, its cross-section between economic, administrative and other scientific paradigms. The very breadth of the topic of study clearly shows that partial approaches based exclusively upon analytical economic theories and normative articles, do not offer a conceptual and multple criteria satisfactory model for a selection and development of an adequate strategy of the public sector operations. What we need is an indepth and systems analysis of the IT outsourcing and insourcing strategies impact upon the operations of the public sector and their implications upon the entire social environment. From this aspect, the study is based on a combination of the scientific theory (methodological level), economic science theory (institutional level) and on the theories on economic entities behaviour (antropological level). Our aim in this study is to shape and structure a conceptually balanced approach to forming an integrated IT services outsourcing or insourcing in the public sector, on the basis of varied theoretical platforms. Making use of the results and conclusions of empirical studies of various autors, we attempted to present an analytical hierarchy multiple criteria decision-making model for appropriate decision making in selecting a certain strategy for provision of IT services and other business processes in the public sector. In addition to basic economic methods that primarily throw light upon the financial background of the problem and offer exclusively quantitative estimates on the adequacy and legitimacy of the selection of one of the mentioned strategies, in the analysis and in making important strategic decisions, such as deciding in favour of IT services outsourcing or insourcing, it is necessary that a method should be employed that will include a multiple criteria structured and multidisciplinary approach to an insight into the entire problem matter. According to the experts, the in-depth scientific research should use analyses, the primarily socio-eco 2 The hollowing out effect is a common term for a set of negative results usually incurred by a loss of autonomy of one or more organizations. This effect may be caused by the acquisition of the organization or by joining by another organization. The term also applies to outsourcing since the transfer of services ans/or business processes, sometimes even key ones, to outside providers may result in losing control and management, losing financial means, competences, organizational vision, trust, knowledge, creative potential and culture capital in the organization. In some cases, we can talk of a hollowing-out effect in an example of a broader social phenomenon, environment or even the whole state, which in the globalization area sets a rather serious problem (excessive moving of production and other operations to other states offshoring, etc.) Š6Ë. nomic criteria and the Cost-benefit analysis, as well as the Balanced Scorecard to offer above all more conceptual and longer-term solutions to the problems posed Š2Ë, Š3Ë. The Cost-benefit analysis and the Balanced Scorecard will, in addition to the economic criteria, employ their method of quantification of key strategic organizational factors to help select the most efficient business strategy, and strengthen this decision from the financial, organizational, personnel as well as the social aspects. In the final section of this paper the Analytical hierarchy process method (AHP method) will be presented, one of the best-known and most popular methods of multiparametre decision-making that could help find more rational and more efficient manner of spending of assets, where the quality of decisions really depends on a host of factors. 2. Outsourcing 2.1 Definition of outsourcing The concept of outsourcing is burdened by numerous connotations and prejudices. This is seen in a broad range of definitions of this concept, from most concise to superficial and partial definitions of the phenomenon in consideration. Greaver defines outsourcing as a transfer of certain repetitive activities and decision-making authority to outside providers, under the conditions previously defined in the contract on cooperation Š4Ë. As these are repetitive activities, defined in the contract, outsourcing can be said to go beyond the use of external consultants. In a majority of outsourcing examples, actually, it is not only the activities and business processes that are transferred, but also the instruments of labour and the decision-making authority. Ellram and Maltz define outsourcing as a contracted transfer of liabilities to perform some operations within an organization to a third party Š5Ë. The head office of the provider and the site where the operations are performed may be geographically the same or distant from each other. This primarily depends on the type of operation transferred to the outside provider and its logical needs. The concept of outsourcing is therefore possible to interpret as a business strategy by which an organization, due to certain reasons (most times these reasons are of the cost type), transfers the performance of certain business processes or services to entities outside the organization, with the intention to focus on its key tasks and core activities. The abovementioned definitions of outsourcing highlight some disagreements among the definitions of the concept, ranging from minor semantic differences to fun damental differences in the conception, understanding and defining outsourcing. Partial approaches, inconsistency and disagreement in defining the outsourcing concept itself set additional difficulties in its evaluation as well as in the analysis of its appropriteness, efficiency and performance. The accuracy in defining the strategic concepts of organizational business activities is much more important than it apperas at first sight, the more in the public sector because each error is paid by public money. Namely, it is only with clearly defined future business strategies that we will be able to conduct a sound analysis of the current situation in the organization and evaluate the effects and results of the selected strategy. In case we fail to define the strategy correctly and we do not know its economic, normative, contractual, developmental and organizational frames and traps, our decision making is reduced to the level of intuition. 3. Reasons for introducing outsourcing 3.1 Advantages and benefits of outsourcing Due to the scope of the problem that goes far beyond the boundaries and ambitions of this study, the organizational reasons that result into the project of IT services outsourcing, or its terminantion, will be only shortly described. The reasons, according to various authors, differ, however, they all meet in the following Greavers classification Š7Ë: 1. Organizational reasons (cid:190) Organizational transformation, (cid:190) Improvement of efficiency with a focus on core competencies. 2. Business improvement (cid:190) Improvement of business results, (cid:190) Improvement of managerial skills and increase of control. 3. Financial reasons (cid:190) Reducing investments into ownership and set ting the capital free to be invested further, (cid:190) Acquisition of new capital with the transfer of material resources to outside provider. 4. Incomes (cid:190) New market opportunities via the outside providers network, (cid:190) Acceleration of organizational growth using the outside providers potential. 5. Costs (cid:190) Cost reductions due to higher cost efficiency of the outside provider, (cid:190) Fixed costs transformation into variable costs. 6. Personnel reasons (cid:190) Employees are given chances for career devel opment, (cid:190) Increase in employees commitment and ef forts in the non-core organizational competencies. Obviously, within each of the listed categories there are still more concretely and accurately stated reasons for outsourcing, however, for the needs of this paper, the above classification is quite satisfactory, since it describes the general trends in decision making in favour of outsourcing rather well. Numerous research, conducted primarily in the USA, corroborate the above classification of the most important reasons in favour of IT services outsourcing Š8Ë. The most important reason in favour of outsourcing is undoubtedly the cost reduction; as many as 48% organizations included in the research listed costs as the most important factor; then follows that the organizations reported a 40% higher focus upon the core competences; the third position is the lack of internal resources in the organization (35%). The reasons that follow refer mainly to the quality of the services and products and are more focused upon the customer satisfaction. Below are listed the access to the outside providers ultimate technical competencies and knowledge, risk reduction, better opportunities for investments into strategic projects, etc. 3.2 Weaknesses and risks of outsourcing As well as the above mentioned advantages and benefits of outsourcing, it must be noted that outsourcing projects bear numerous potential weaknesses and risks that have to be assessed and analysed before the decision on implementing an outsourcing project is made. The biggest problem in the outsourcing projects is the fact that problems emerge later in time, when the organization is already deeply involved in the outsourcing project. Causes of such a situation are many, in both business entities involved. Numerous experts argue that the private sector companies are most endangered due to the selection of the wrong outside provider, whereas the public sector organization are most seriously exposed because of outsourcing inadequate operations, unpredicted costs and the hollowing-out effect. Bongard classed the potential weaknesses and risks in outsourcing projects into six categories Š9Ë: 1. Costs (cid:190) Rise of unpredicted costs, (cid:190) Fixed price of services contracted with the out side provider that really falls over a longer time span, especially in the IT services area. 2. Labour force (cid:190) Employees feel threatened, fear from losing jobs, lack of motivation to work, (cid:190) Fall in productivity, weaker organizational cli mate and culture. 3. Technology, technological knowledge (cid:190) Loss of core knowledge in organization, fall in the intellectual capital of the organization, hollowing-out effect, (cid:190) Wrong estimate and transfer of organizational core competences to outside providers. 4. Information (cid:190) Discretion is threatened, possible loss of confi dential information, (cid:190) The ouside provider conceals information on potential problems until it is too late. 5. Dependance on outside providers (cid:190) Loss of control over the outside provider and consequently over business processes, (cid:190) The outside provider has too much power, especially in very complex outsourcing projects. 6. In-house resistance (cid:190) The outsourcers distrust in outside provider may pose a serious threat to the relationship, (cid:190) Passive attitude and lack of interest among individuals within the outsourcers organization in the outsourcing project. The description of potential weaknesses and risks of outsourcing also includes the fact that each listed category includes a host of additional and concrete impact factors, which may affect the project as instability factors or even discontinue the outsourcing project; however, for the purposes of this study the above presented description of factors is illustrative enough. 4. Outsourcing and IT Due to its applicability, IT is a rather specific field of study within all the subsystems and on all organizational levels, as well as in the relations with entities outside the organization. The abstract nature of the raw materials that enter the information system or information process makes IT outsourcing difficult to plan and construct as it is often hard to define the evaluation of the selected business strategy itself and its effects and longterm benefits it brings to the organization. Economic analyses and classic methods of assessing IT services outsourcing projects are often inappropriate for an objective evaluation of similar projects, because of the dispersion of both vertical and horizontal effects these projects bring to all the organizational segments and entities in its environment. It is for this reason that assessing IT services outsourcing projects in the public sector, their achievement and efficiency and the very use of IT and the related services, calls for ultimate caution, as citizens are at the same time the majority owners and consumers of their services. Our aim in theis paper, as we have already stated in the Introduction, is to introduce a qualitatively structured multiple criteria decision-making model for making decisions connected to IT services outsourcing or insourcing in the public sector organizations. The nature of the outsorcing strategy itself requires that a dual approach should be used in forming such models founded on several criteria. A good decision making for the IT services outsourcing projects, based on objective criteria, has to include two aspects, the material and the formal ones, i.e., the content and the process aspects. The material aspect focuses upon the contents of IT services that a public sector organization plans to transfer to outside partners to perform, as well as to the expected benefits that the organization should achieve through a selection of such a business strategy. There is almost no business activity that has not been outsourced, either partially or fully. This previous sentence raises some questions as to whether all services and operations are really adequate to be transferred to the outside provider, having in mind that public services are by a rule financed according to plans and that they are meant for a broader public benefit that should be provided by the public sector; and also, why do we need such a transfer of services and operations at all, if we take into account the number of highly trained experts that work within the public sector system itself. An important issue, too, is whether the public sector organizations have formed the criteria (financial and other), namely, the strategic frameworks in which they decide which segment of operations of the organization or information system (IT services) is appropriate to be outsourced over a long-term period and why. The formal aspect focuses upon the entire process of IT services transfer to the outside provider and all the side effects. This aspect deals with the entire process, from the outsourcing idea, to a public tender and the selection of the outside provider, to concluding the contract with the outside provider and the evaluation of the business relations following each completed business cycle. It often happens that organizations do not follow the planned phases of the process, but rather make shortcuts towards the goal, which in a long term may prove to be a critical error. Such a thing is highly dangerous in the public sector, since the costs of wrong decisions made by the organization are paid by the entire social community, not only by the owners or liable individuals, as is the case in the private sector. All the phases in the process of the IT services transfer to the outside provider are of paramount importance and succeed each other in a regular order. A proper implementation of the outsourcing project requires a consistent and accurate implementation of all the phases of the process. A rational and multiple criteria founded outsourcing decision requires that both aspects, material and formal, should be joined together and that a structured, multiple criteria decision-making model should be created. Only on the basis of such a decision-making model can we decide about the steps we will take and of the beginning of the outsourcing project procedure, as this model actually clearly and directly shows whether the IT services operations or the overall operations in general are appropriate to be outsourced. 5. Approaches to the development of a multiple criteria decision-making model The development of a multiple criteria model for making decisions as regards the IT services outsourcing in the public sector inevitably requires, especially in the nowadays social and economic circumstances, that a balance be established among numerous different factors, such as: economic, social, political, normative, and technological. All these require that numerous stakeholders be involved, each with their own priorities and goals, into all the phases of the development process and consequently the decision-making process. Taking into account the abovementioned assumptions, the stiudy continues to focus upon forming and development of a multiple criteria decision-making model (MCDM) which will help managers set priorities and make adequate decisions in the field of IT services outsourcing in the public sector. The multiple criteria decision making (MCDM) is one of the best known trends in the decision-making theory. MCDM includes a number of different methods, each of which has such qualities due to which its implementation is confined to defined, usually narrow, fields of complex decision-making. Following the analysis of these qualities and an estimate of their adequacy, the most appropriate method will be selected for the design of a multiple criteria decision making model in the area of IT outsourcing in the public sector. Thus, according to experts, the methods are classed according to the types of data used in the decision-making process; hence we know Š10Ë: deterministic, stohastic, and fuzzy models. The methods are further classed in accordance with the number of individuals involved in the decisionmaking process; here we talk of the methods involving only one individual making decisions, or of the methods involving a number of individuals, namely, a group. In designing a multiple criterion decision making model for IT services outsourcing, due to the nature of the research area, we will implement a deterministic method with one individual making decisions, which will improve the reliability and accuracy of the model. It will also facilitate the implementation of the designed model. In addition to the above mentioned, it must be noted that the classification used is only one among many, since these methods, however different, have a lot in common (alternatives, attributes, objectives, decision criteria, ...), therefore two or more complementary methods can sometimes be used, in accordance with the nature of the decision-making process itself. If the characteristics of IT services outsourcing are taken into account on the basis of the above said, then planning, development and designing a multiple criteria model has to satisfy three important criteria: 1. The decisions in complex problem solving have to be made on the basis of a larger number of relevant qualitative and quantitative criteria; 2. The subjectivity aspect of the decision-making person has to include potential ambiguities; that is, the lack of information in judging has to be valued and calculated into the overall decision-making process; 3. The model must be shaped in such a way that in its inplementation phase, in making concrete decisions, it has to allow for the use and comparison between different alternatives, having in mind the definition of the goal, as well as the selection of key criteria and subcriteria. The review of the methodological framework used in the development of the multiple criteria decision making model is shown in Figure 1. In the first step, the methodology focuses upon defining priorities and then upon the analysis of the complex structure of the problem and the inclusion of all the tangible and intangible factors, i.e., all the measurable qualitative and quantitative factors within the complex problem structure. In the second step, the methodology goes one level higher, including into the decision-making process some more complex interactions among factors, such as the interrelation among the factors and their hierarchal structure. This is the phase in which the final choice and assessment of the relevant criteria and subcriteria are made. In the third step, the entire range of chosen criteria is further weighted in a more adequate manner, taking into account their importance, time limit and other organizational preferences; namely, each decision-making process is burdened with some objective restraints that cannot be avoided and that are necessary to include if we want to achieve long-term strategic goals. It is also necessary that the subjectivity of the decision-making person be also assessed and, if needed, the criteria weighting should be assigned to other individuals, and only then a compromise should be reached, a solution that would enhance the objectivity of the model itself as well as facilitate its implementation and use in the future. Figure 1: Methodological framework of the multiple criteria decision making model development Given all the necessary conditions that have to be met as well as the above mentioned model characteristics, the Analytical Hierarchy Process model (hereinafter: AHP model) is selected for the needs of IT services outsourcing in the public sector. The analysis of all its characteristics and the assessment of its adequacy has proved that this model meets all the previously defined requirements (numerous similar models are used in similarly structured problems in the field of multiple criteria decision making, such as: ANP Analytic Network Process, ELEKTRE, PROMETHEE, etc, which are usually the extention of the AHP model and serve as a corrective to calculate more precise and more reliable results). The AHP model will be further elaborated in the following chapters. 6. Analytical hierchy process The author of the Analytical Hierarchy Process meant as a support to decision making in various areas is Thomas L. Saaty Š11Ë. The multiple criteria decision making model in the IT services outsourcing or insourcing used in this study is called the Saaty application (Saaty©). The original Saaty© programme was established by Andrej Mrvar3. The application was devised on the platform of the analytical hierarchy process. Hence the applications name. The AHP model is one segment of a well known decision-making model and the Expert Choice, the expert programme system. Regardless of the fact that the model is more than ten years old, it is still used as one of the best decision-making support systems, and its use has even highly increased lately. The entire AHP model is based on the structured or hierarchical order of the elements of an entity or a process. Generally, hierarchy means the structural order of the parts of an entity according to their importance or characteristics; organizationally, hierarcy is a system of control established in an environment for the purpose of an effective conduct and efficient achievement of goals. As regards the achievement of goals, each business entity has to, in accordance with its specific features, choose among a variety of decision-making processes and select the most optimal one when it comes to making decisions on important strategic and even tactical issues. Decision making in the given framework of rational and efficient business in the public sector always has the same objectives, namely, to find the best solution out of the group of offered solutions, on the basis of given criteria Š12Ë. ple process of making comparisons between different valuations, which is further used in ranking the solutions achieved in the course of the decision-making process. In this decision-making phase, the Saaty© application serves to make the comparison via the comparison matrix of all the pairs of criteria. On the basis of all the pairs of criteria the most optimal solutions are selected. The identical procedure is repeated among potential subcriteria, too, if during the procedure we come to a conclusion that a further decomposition of criteria into subcriteria could ensure a more objective and a more argumented decision making. Together with its instruments the AHP includes and allows for the involvement of a large number of relevant factors which guarantees an appropriate and objective, i.e., consistent approach to making final decisions. The implementation of the AHP may help set realistic goals and priorities. Here it is important to take into account both qualitative and quantitative aspects of decision making. The essence of the AHP model is breaking the decision into a number of smaller decisions. In the first place, we mean breaking into one-to-one comparisons, which consequently allows for a more realistic assessment of the given problem Š14Ë. The simplest way, used in problem structuring, is hierarchally constructed from three segments (Figure 2): Goals are set to the highest level; Criteria are set to the medium level; Solutions are set on the third, lowest level. 6.1 Saaty model in multiple criteria decision making LEVEL 1 lately become The Saaty© application is based on the AHP model that has incraesingly popular. Nevertheless, this model of outsourcing and insourcing is rather difficult to find in literature, especially in the IT services area, although the AHP has numerous advantages over similar models, as it allows for the study of both rational and intuitional factors, which considerably facilitates the selection of the best solution. This assumption is, naturally, possible if we take into account certain adequate and appropriately weighted criteria, which will be dealt with further below. The entire decision-making process is based on conducting a sim 3 The version of the Saaty© application used in this paper was designed by Dimitrij Rejja, Andrej Mrvar and Dean Lamper. The application is based on the previous programme platform, devised for the DOS operational system. A new version of the Saaty© application allows for both student and professional use Š13Ë. LEVEL 2 LEVEL 3 Figure 2: Decision-making hierarchy in outsourcing Reja, 2002, p. 14 The above structure allows for the classification of elements in terms of their importance and ranks them into their appropriate levels that would meet the selected criteria and bring the organization to the set goals. In structuring the overall decision-making process we should keep only to the relevant factors that show implications as to the decision-making subject and be careful not to stray into an excessive dissection of the problem, which may disguise major aspects and result into low-quality decisions. Model design requires a good knowledge of the problems and a balanced application of data for an objective assessment of criteria. Too large a number of criteria may devaluate the hierarchy relations and the relations among the criteria themselves, whereas too small a number of criteria does not allow for calculating all the important aspects of the problem and offers an unbalanced and partial solution to the problem in the decision-making process, as it does not include all the relations among the elements and their correlations. Hence accuracy, consistence, and good knowledge of the nature of the problem is of great importance in setting the criteria. The leading experts in the study of outsourcing and its broad socio-economic implications stress a multi layer nature of this phenomenon Š15Ë, mirrored in an extremely complex and aggravated evaluation of all the effects of outsourcing, that are often well hidden due to the long time cycle of the project and emerge only after a long time period. On the basis of the studies of the leading experts, and the complexity of the overall outsourcing area, we have chosen the following criteria for the design and practical illustration of the effects and use of the Saaty model in a multiple criteria decision making: 1. Costs 2. Competences 3. Quality 4. Customer satisfaction 5. Risk 6. Organization 7. Development 8. Innovation For the purposes of this work a simulation of a hypothetical problem situation was made using the Saaty model, where the public sector organization selects one out of two offered solutions, or IT services outsourcing and insourcing. The final decision must be based on the above quoted criteria, the hypothetical starting points of the project are ¡ 500,000 for the outsourcing project and ¡ 350,000 for the insourcing project. The absolute and relative estimate of the criteria and their decomposition into subcriteria was performed on the basis of subjective preferences and serves to better illustrate the overall procedure of the multiple criteria decision making. We will proceede to present and more accurately analyse the entire Saaty procedure as well as its application and the selection of the most appropriate solution (alternative) in the concrete problem situation, which will be based on the above quoted data. 1. Mathematical computing using Saaty procedure (IT services outsourcing) 6.3.1 Comparison of criteria The first step in the Saaty procedure is the comparison between the prepared and afore-selected criteria. The comparison of pairs in the analytical hierarchy model means comparing between homogenous elements. Weighting and comparison of the pairs of criteria in our example, the so-called reciprocal matrix for devising the decision-making model for IT service outsourcing is presented in Figure 3 and shows only one of numerous possibilities of weighting nad assessment of the criteria within a given framework of the Saaty procedure. Naturally, each individual has his/her own point of view and goal, so they decide upon and weight criteria according to their individual preferences. The general comparison scale is shown below: 1 criteria i and j are equally important 2 criterium i is slightly more important than cri terion j 3 criterium i is substantially more important than criterion j 4 criterion i is significantly more important than criterion j 5 criterion i is absolutely more important than criterion j The comparisons can be assigned with values 2,4,6,8 if we cannot make a decision on the basis of the values from the above quoted scale. The reverse value means that the criterion j is superior to criterion i, e.g. aij = 1/7 means that j is significantly more important than i. In applying the multiple criteria models we often come across the situations where we deal with two very similar, however, not identical criteria. In such cases it is difficult to provide an objective rating of the characteristics of both criteria. When such a situation emerges in the process of structuring the decision-making model, the best solution is to make the comparison on the basis of the comparison between smaller segments of subcriteria instead on the basis of larger entities Š16Ë. It is necessary that the values of certain elements should be analysed accurately and compared between each other by segments, for which a 9-grade scale suffices. For the purpose of a more accurate analysis, therefore, segments of a certain element should be compared between each other. In the decision making process on a complex problem we usually have to deal with a large number of criteria, which make them difficult to control and rate consistently. The AHP allows for joining the criteria into joint criteria which are further linked to other joint criteria into a tree structure. The hierarchy principle of arranging elements allows us here to control complex systems. It offers us a global insight into the major higher level factors as well as a detailed insight into the structure and functions on the lower levels. The hierarchy also helps reduce the number of comparisons of the criteria we have to enter into the decision-making procesure. It is for this reason that matrices are more reconciled Š17Ë. The AHP within the Saaty procedure allows for a transition from lower ranked (on lower levels) to joint (on higher levels) value criteria. Criteria Costs Competencies Quality Customer satisfaction Risk Organiztion Development Innovation Costs Competencies Quality Customer satisfaction Risk Organization Development Innovation 1:2 3:1 1:2 1:3 1:3 2:1 2:1 2:1 1:3 1:3 1:2 1:3 1:3 1:2 3:1 1:3 1:3 1:2 1:2 2:1 1:3 1:2 1:3 1:2 1:2 3:1 3:1 3:1 2:1 2:1 3:1 3:1 3:1 3:1 3:1 3:1 1:2 2:1 2:1 Figure 3: Positive reciprocal matrix 2:1 2:1 2:1 1:3 1:2 1:2 1:2 3:1 2:1 2:1 1:3 1:2 2:1 6.3.2 Relative and absolute comparison of criteria In Saaty procedure, criteria can be compared in a number of ways (Figure 4). Type of criteria Relative ratio X Absolute values less is better Absolute values more is better Figure 4: Possible methods of comparison between criteria The relative method serves to compare pairs of values and, on the basis of the comparison, to rate the differences among them Š18Ë. The analytical hierarchy process uses both relative and absolute comparisons. Relative comparison (Figure 5): In this measurement we compare all the criteria by pairs. In the example of the n criterion, this means n(n-1)/2 comparisons. In Saaty model, the relative comparison of criteria uses a 9 grade scale, as shown in Figure 5. Ratio between criteria Costs                              Competencies 2:1    X      9:1 1:9 Figure 5: Relative comparison of costs and competencies criteria As shown in Figure 6, the Saaty model allows for a relative comparison of individual criteria among each other, too, taking into account the possible solutions (alternatives). Criteria Competencies Outsourcing Insourcing Outsourcing Insourcing 1:2 2:1 Figure 6: Reciprocal matrix for relative comparison of competencies criterion and the highest individual value in two potential solutions (alternatives) The absolute comparison (Figure 7): absolute comparison refers to a certain rating of the criteria. The rating may be absolutely arbitrary, e.g., 1-excellent, 3-medium, 5-poor. In this phase, it is necessary to define which grade is better (lower or higher). The subcriteria grades therefore affect the value of the joint criterion. In our concrete example, the financial rating of a certain solution (alternative), i.e., the cost of an IT service out sourcing project was set, which, according to our approximation amounts to ¡ 500,000, while the cost of an IT service insourcing project, was estimated to be cca. ¡350,000. The Saaty procedure requires that an absolute criterion should be additionally defined and that the decision on which grade is better should be entered; in the case described it is obviously the grade less is better (Figure 7). Criteria Costs Less is better Outsourcing Insourcing 500,000 350,000 Figure 7: Absolute comparison between criteria 6.3.3 Preferential relations and utility functions The selection, the rating and the weighting of criteria is followed in the Saaty procedure by a calculation of the utility function. In the multiple criteria decision making we deal with two highly important notions Š19Ë: Preferential relation S (preferable to ...): xSy Utility function ω (x) which measures the preference level for the solution x which in the concrete case means that we know which solution we prefer (we know the preferential relation), but we cannot assign or determine any deffinite value to the solution (we do not know the utility functions). The square matrix A = aij (i = ...m; j = 1...m)4 represents all the pair comparisons of the m criterion. 6.3.4 Comparison matrix A and utility ωω This matrix gives us the utility vector with the solution of the problem of single values of the matrix A. The calculation of the individual value of the matrix Š20Ë: Aω = λω where λ is the highest single value of the matrix A, ω is the adherent single vector5. The single value that belongs to the obtained single vector is calculated using the formula: aik * akj = aij The extent to which the comparisons of criteria are mutually reconciled can be calculated for each reciprocal positive matrix. Here, in the example of total reconciliation, the highest single value is equal to the A matrix dimension λ = m ⇔ absolute reconciliation. The highest single value is actually higher than m (λ>m). On the basis of this deviation the consistency index I is worked out: λ= m ⇔ Using this index, the AHP computes the consistency ratio CR: λ = The A matrix is characterised by the following features (Figure 3): values one are distributed along the diagonal, symetrical values are inverse. Such a matrix is called a positive reciprocal matrix. Using a positive reciprocal matrix, a single vector that belongs to a single value can be calculated in a number of ways: An accurate method raising method matrix is raised to a certain big enough power and then we sum the power and normalize it by rows, so that the sum is 1. Approximate method6 - matrix is normalized, so that the sum by columns is 1, and then we calculate the average value of an element in a row. Thus we obtain the vector , i = 1..m. The ratings in the matrix are interconnected, hence at least an approximate transitivity is present: Where IR is a random index obtained from randomly generated positive reciprocal matrices. If then the matrix is consistent enough, if not, then the matrix should be adjusted because it is otherwise useless. The results will be incorrect due to inconsistent comparison. In our example CR<0.1 which means that the matrix is consistent enough. Throughout the calcultion process in the Saaty application the most important coefficients are visible; so it is in our concrete example of decision making on the IT services outsourcing or insourcing in the public sector. On the left we observe: the name of the model, the size of the model (8x8 matrix), the highest single value of lambda (λ), CI, CR, MaxD (maximum deviation from consistency) and the position of the largest deviation in the matrix. In the example that CR<0.1, the entire text in the status row is written in the Bold or Italic form,s which means that the matrix is not consistent enough, i.e., that the whole procedure should be repeated. This index has still to be compared to the index we obtain from randomly generated positive reciprocal matrices of equal dimensions on the 1 9 scale. The random index IR (random index Table 1). m IR 0.50 0.58 0.90 1.12 1.24 1.32 1.41 1.45 Table 1: Random index 4 Such a matrix is called a positive reciprocal matrix symetrical values on either side of the main diagonal are reciprocal numbers. 5 The explanation of the vectors and functions can be found in the following paragraphs in chapter 6.3.5. 6 Saaty© application allows for the use of either approximate or accurate method The above presented phases of the AHP or the Saaty multiple criteria decision making procedure follow each other sequentionally, which the application performs by itself. The user then has only to define and select the criteria and determine their relative and absolute values in the comparisons. In addition, in weighting the criteria it is necessary that the consistency ratio should be controlled, and this must be CR<0.1. Otherwise the matrix is, as we have already stated, inapplicable due to the inconsistency of ratios. 6.3.5 Formal sequence of the Saaty procedure in the IT services outsourcing example 1. Rj criterion (j = 1..m) Xj solution (i = i..n) ω i criterion j advantages (j = i..m) qij advantage of solution i per criterion j Pj joint advantage of solution i per all criteria 2. The result of the Saaty procedure are the matrix Q and the vector . Matrix Q R1 R2 3 … R3 … Q X1 … …. …. … … X2 … qij Xi … Xn j … Rj … P1       m Rm P2 Pi Pn        3. We achieve the vector as a single vector of the matrix of pair comparisons of all m criteria. 4. For each criterion Rj (j = 1..m) we compare by pairs all the solutions between each other. R: X/X qij, vector qj presents the advantages of all the solutions in relation to the criterion Rj, and we put it as a column by the criterion Rj into the matrix Q. 5. We calculate the joint advantages as related to all the criteria. The advantage of the solution i is: We choose the solution i because it has the highest value Pi. Pi for the solution Insourcing reached the value 0.5131. The value reached by the solution Outsourcing, in our example, is slightly lower and amounts to 0.4869. As regards our choice of criteria, their weighting and their both absolute and relative comparisons, the solution Insourcing was rated higher, which is clearly shown in our above calculations. As we can see, we have chosen 8 criteria in our example, those that are deemed to be most relevant by the majority of literature dealing with this problem. A large number of criteria supports the multilayer nature and the complexity of outsourcing and its implications upon numerous spheres of organizational operations. Due to all the listed reasons, a serious scientific study of this problem requires a broader and deeper insight into the background and contents of the overall phenomenon of outsourcing. 7. Conclusion Regardless of various attempts to reform, reengineer or reconceptualize it, the public sector has in the last thirty or so years remained in an unfavourable position. The dilemma of the public sector between the wishes and needs of the citizens, on one hand, and planned restrictions and savings on the other, is best illustrated by the legend on Buridans ass which, as we know, ends sadly. It is necessary that steps should be taken towards understanding and study of strategic factors of operations in organizations that are, due to the nature of the public sector, engaged mainly in service provision, where the importance of choice between outsourcing and insourcing is even greater. A thorough analysis of the above mentioned issues may significantly help experts in their future research of this problem, either as a whole or as only one segment. Large investments into IT and the modernization of business processes are often ineffective if organizations neglect a planned and systematic design of the respective business strategies which due to their importance rank among the most important factors of an efficient and successful public sector. The selection of a suitable business strategy (outsourcing or insourcing) is a factor that may act as a catalyser in creating a more efficient and a more rational public sector. It is clear from the study of the public sector and its specific features that a deeper insight is needed into the existing concepts of its work as well as an identification of both the elements, i.e., the business processes and services that need to be sustained and developed further, and the elements that should be changed or redesigned. Such activities could significantly contribute to setting the foundations for a potential study of deeper and hidden levels of the IT services outsourcing or insourcing strategies in the entire public sector, which can be a long-term process, spanning over several years. The results of such research that highlight different aspects of outsourcing or insourcing implementation are of great importance for the organizational strategy planning itself, which is especially important for the proper work of the public sector. The business performance of the organization is actually a proof of the consistency of systems and strategies within the organization itself, as well as their reconciliation with a broad systemic organizational environment. Finally, it is important to note that this paper is only one illustrated example of the possible implementation of a scientific model in planning and designing the organizational business strategy which only proves that in an attempt to manage and do business efficiently in the public sector, it is necessary that, in the phase of the selection of a long-term business strategy, some content and process criteria should be satisfied. The decisions of the public sector organizations on IT services outsourcing have to be based on multiple criteria and must not be founded on short-term cost efficiency exclusively. In addition, the public sector organizations must develop an awareness of long-term strategic implications of their decisions in favour of outsourcing and thus avoid possible negative impacts. And finally, it is necessary that we think about insourcing in certain areas of the public sector activities that can, in adequate circumstances and aided by a quality project management, achieve much better results in the long run, in comparison with outsourcing. REFERENCES Š1Ë, Š15Ë Chapman, Robert B., Andrade, Kathleen R., Andrade, Kathleen. Insourcing After the Outsourcing: MIS Survival Guide. AMACOM, 1997. Š2Ë Grembergen, W. Van, Bruggen, R. Van. Measuring and improving corporate information technology through the balanced scorecard, The Electronic Journal of IS Evaluation, Vol. 1, Issue 1, 1997. Š3Ë Kaplan, R. S., Norton, D. P. Uravnoteženi sistem kazalnikov, Ljubljana, Gospodarski vestnik, 2000. Š4Ë, Š7Ë, Š15Ë Greaver, Maurice F. Strategic Outsourcing: A Structured Approach to Outsourcing Decisions and Initiatives. AMACOM, 1999. Š5Ë Ellram, Lisa M., Arnold B. Maltz, Outsourcing: Implications for Supply Management, Tempe, Center for Advanced Purchasing Studies, 1997, str. 2. Š6Ë Business process outsourcing. ŠURL: http://www.outsourcing-research.com/ban ners/pwc/bpoeur.pdfË, 12. 12. 2009. Š8Ë 2000 Outsourcing Index. Strategic Insights Into U.S. Outsourcing. ŠURL: http://www.outsourcing.com/common/index2000.jspË, 18. 12. 2009. Š9Ë, Š15Ë Bongard, Stefan. Outsourcing Entscheidungen in der Informationsverarbeitung. Entwicklung eines computergestützten PortfolioInstrumentariums. Wiesbaden. Deutscher Universität Verlag, 1994, str. 480. Š10Ë Chen, Shu-Jen, Hwang, C. L., Hwang, Frank P. Fuzzy multiple attribute decision making: Methods and applications, Springer-Verlag (Berlin and New York), 1992. Š11Ë Saaty, Thomas L. The Analytic Hierarchy Process. RWS Publications, Pittsburgh, 1988. Š12Ë, Š13Ë, Š14Ë, Š17Ë Reja, Dimitrij. Implementacija Saatyevega večkriterijskega odločitvenega procesa, Diplomsko delo, Fakulteta za družbene vede, Ljubljana, 2002. Š15Ë Willcocks, Leslie P., Lacity, Mary C. Information systems outsourcing in theory and practice. Journal of Information Technology, 10 (4), 1995, str. 203-207. Š16Ë, Š18Ë Saaty, Thomas L., Vargas Luis G. Decision Making in Economic, Political, Social and Technological Environments. RWS Publications, Pittsburgh, 1994. Š19Ë Mrvar, Andrej. Saatyev večkriterijski odločitveni postopek, Fakulteta za družbene vede, Ljubljana, 1999. Š20Ë Pandey, Vivek, Bansal, Veena. A Decision Making Framework for IT Outsourcing using the Analytic Hierarchy Process, 2003. The Efficacy of Public-Private Partnership Implementation in Infrastructure Improving UDC: 338.49:336.13 Slađana Benković1 1Faculty of Organizational Sciences, Belgrade Public-private partnership is a concept that evolves. From the rudimentary partnership which is characterized by a high level of informality, a public-private partnerships have turned into a contractual relationship institutionalized by public and private sectors and now include a wide range of organizational models. Some of them can be said to include significant public and private responsibilities related to planning, financing and implementation. So far a great variety of new models of public-private partnershiphave been developed to address the various challenges, that are set before the public-private partnerships in specific situations and sectors. Consequently, the synergy created within the partnership can be extended to specific niches of infrastructural development. Models of public-private partnerships differ depending upon the participation of private capital in the project realisation and those related to infrastructural projects will be the subject of this paper. 1. Introduction Applying project financing as a modality of financing has in the past decades become an attractive method of financing, construction and maintenance of the public sector infrastructure, as well as of building industrial facilities. A Long-term business association between the private sector and public institutions aims to make use of the available private sector managerial and financial resources that often are a significant constraint from the point of view of the Government or local autonomies. The organizational structure of such a partnership is a formal system of obligations defining individual positions of entities and their reciprocal liabilities. This results into a distribution of responsibilities related to supplying the necessary resources, risk allocation among entities and, finally, the execution of the project for the purpose of meeting the needs of the public sector. Synonyms for the notion defined by the contract bond between the public and the private sectors differ from one part of the world to another. They all have their roots in the English language. Thus we often find terms such as: Š10Ë (cid:190) Private Participation in Infrastructure imposed by the World Bank experts, and rarely used outside the financial-developmental sector except in South Corean project financing programmes. (cid:190) Private-Sector Participation, a term most often used in the development and banking sector. (cid:190) Privately Financed Projects, a term most often used by Australian experts, hence it is encountered chiefly in that area. (cid:190) Private Finance Initiative, a term coming from Great Britain and now frequently used in Japan and Malaysia. (cid:190) Public-private Partnership (PPP or P3), a term characteristic of the United States of America region. Originally it was related to mutual public-private funds meant for the development of education, extended to cover the financing of public utilities in the 1950s as well. Since 1960s it has been broadly used and is now also used to denote public-private partnerships in the reconstruction and improving of urban areas. Public-private partnership can be defined in both broad and strict senses. Strictly speaking, the central idea of partnership is in cooperation, where the partners retain independent identities, but cooperate in achieving mutual business goals and results. Š7Ë The term is so popular that it is often used incorrectly and denotes even those types of relationship that are far from being collaborational. Commercial relationships between public agencies and private contractors, for example, can hardly be termed partnership. Š7Ë Hence the strict definition of partnership means that infrastructure projects of the public-private partnership type need not by nature be partnerships. The broader definition, at the same time, includes not only mutual, but also complementary goals of interest parties in the project or programme, thus profiling the partnership relations. Thus a concession for the highway construction and management has different goals and meaning for the private sector in comparison with that of the public one. While the Government or a local autonomy are concerned with an acceleration of economic growth, the quality of services delivered and as low a road toll as possible, the private investors are exclusively interested in financial goals, i.e., the profitability of the project. Not only do these goals fail to be mutual, but they are even adverse to some extent. Nevertheless, if the public sector is not capable of ensuring the capital to finance the highway construction, it is possible, from the aspect of the social community, to find a certain complementarity of interest for such a partnership and denote this relationship as partnership. All definitions of public-private partnership share some mutual features such as: (1) public-private partnership is always related to the cooperation of two or more entities (of which at least one is a public entity); (2) each entity is a principal; (3) the relationship is of a longterm character, stable and based on mutual or complementary interests; (4) the entities transfer tangible and intangible resources to the partnership; and (5) risk and liability are distributed to all the participants in the partnership. Š1Ë 2. Public-private partnership structure and implementation The idea that private companies should be included into the realization of traditionally public infrastructure projects resulted in the emergence of public-private partnership. As a model of financing, public-private partnership is most frequently applied in financing capital projects of common concern such as: highways and motorway facilities (bridges, tunnels) where it is possible to charge the toll for exploitation, railways, ports, airports, gaspipes, refineries, electric power plants, social infrastructure (hospitals, schools, prisons, variouspurpose social facilities for certain categories of population), communal infrastructure (water supply network, waste water disposal, waste disposal) and facilities used by government institutions and other specialized service sectors. Š11Ë Since the major motive of private entiries to participate in the infrastructure projects realization is an adequate financial return rate, proportional to what can be earned by investing into alternative projects of similar risk, the structure of the partnership between the public and the private capitals is formed in such a manner that it ensures and adequate return rate. Consequently, the partnerships between the state and the private capital can be described as joint ventures in which entrepreneurs and the state cooperate, jointly contributing to a faster and more efficient infrastructure project realization. Š2Ë According to Miller and Lesard (2003), the private share in the total investment into infrastructure towards the end of the last millenium varied from 9 and 13 per cent in Germany and France, to 47 and 71 per cent in the USA and Great Britain, respectively. Š9Ë The partnership between the public and private sectors is an agreement between a state and a private subject(s) where the private partner is entitled to perform certain operations in the project realization (design and planning, construction works, financing, managing and maintenance, collecting receivables). Such a type of contract is meant to earn the benefits such as the opportunity for the private sector to ensure more favourable options of long-term financing and the insurance of such financing in a much faster and more flexible manner. The public-private partnership contracts are concluded on a long-term basis, for a space of time of 25 to 30 years. According to Finerty (2007), a typical financial contract concluded on the public-private financing concept has the following characteristics: Š5Ë (cid:190) The contract defines the obligation of the financially liable party to complete the project and, for that purpose, to provide all the funds necessary to complete the project successfully; (cid:190) On completion of the project, i.e., since the moment its exploitation begins, the financially liable party is obliged to ensure that the built facility works. Thus it will generate sufficient cash to cover the operational costs of the project as well as service the debts it incurred during the construction. The expected cash equivalents should siffice to meet the due expenses even in case the project fails due to force majeure, or any other similar reasons; (cid:190) The guarantees that in case the works are stopped and additional capital necessary to put the project into operation needs to be raised, the financially liable parties shall provide the capital through insurance premia, advance payments for future delivery or in any other way. Defining an adequate structure of public-private finance is a complex task, since it is necessary to bring into accord and adjust the goals of a large number of participants simultaneously. Among the private sector ones these are usually investors, lenders, companies involved in the construction of the facility or provision of a certain operation service. On the part of the public sector there are usually the government institutions that create and implement various policies of publicprivate partnership. Finally, there is the public, that is, the future consumers of the facilities built through the public-private partnership. The public sector is assumed in many countries to be in charge of delivering the basic types of services. The manner of creating and delivering services, however, changes. The needs and desires of the public sector to cooperate and make use of the advantages of the pri vate sector are increasingly evident, hence an ever greater number of contracts on joint operations of the public and private entities for the purpose of mobilzation of the capacities and the financial means of the private sector. The forms of these partnerships differ, however, new structures emerge continually to meet the conditions of the environment in which the project is being developed in the best possible manner. This means that partnership is a dynamic form which does not recognize the best model, nor can the approach of the most adequate structure selection be standardized. The general postulates that allow for the understanding and facilitate prioritizing in the selection of an adequate structure of public-private finance start from the notion that: Š4Ë (cid:190) Each public-private partnership structure has its strengths and weaknesses that must be identified and integrated; (cid:190) Public-private partnership does not ensure that the problems will be solved promptly and is implemented in cases of apparent and clear benefits, in relation to the traditional direct financing; (cid:190) The public-private partnership structures must be adapted as regards the sector and the context of implementation; (cid:190) The desired impact and the expected benefit of the public-private partnership concept implementation has a decisive role in the selection of the structure and plan of financing. The following Table Š4Ë presents the basic characteristics of the implementation of the public-private partnership model, with the implementation proposed for a specific sector. The selection of the appropriate structure is a complex task and is based on individual project characteristics and needs. Public-private partnership model Contracting provision of services BOT Major characteristics of the public-private partnership model Public-private partnership model implementation Strengths of the public-private Weaknesses of the public-private partnership model partnership model Concluding contract with a private entity for the design and construction of a public facility; Facility is funded and is the ownership of the public sector ; The key motive for such contracting is the transfer of design and construction risks Concluding contract with a private sector entity for the design, construction, and managing of a public facility during a defined period of time, upon which the facility is transferred to the public sector; Facility is funded by the public sector and is public ownership during the contract period; The key motive for such contracting is the risk transfer with the risk of project design and construction. Suitable for large projects with small operational requirements; Suitable for large projects in which the public sector tends to retain operational liability Transfer of project design and construction risks; The model has a potential to accelerate construction programme; Possible conflict between the planned and the ecological requirements; Operational risk can be higher; The start-up phase is highly critical; Not atrractive for financing by the private sector Suitable for projects with considerable operational contents ; Especially suitable for the water supply and waste treatment projects; Transfer of project design, construction and realization risks; The model has a potential to accelerate construction programme; Transfer of risk affects the adoption of cost approach to project cycle; The model promotes the innovation of the private sector and higher value of invested capital; The model fosters the improvement of the quality of business operations and maintenance ; Possible conflict between the planned and the ecological requirements; Contracts are more complex and tender process is longer; Requires a system of monitoring the management and operations; The cost of new entrance into business if the entity fails to satisfy ; Not attractive for private financing, imposes the need of long-term financing to the public sector; DBFO Concession Contracting certain risk-bearing works Concluding contract with a private entity for the design, the construction, business operations and financing of the facility for a defined period upon which the facility is returned to the public sector; The facility is the ownership of the private sector during the contracted period by which it covers the expences through public subsidies; The key motive is using private financing and transfer of the risks of project design, construction and work; Different varieties of liabilities are included. Same as for DBFO, except when the private sector covers the expences via charging the service to the consumers; The key motive is the polluter pays principle, followed by private financing, and transfer of operational, design and construction, risks. Concluding contract with a private entity for the design and construction of a public facility; The facility is funded and is the ownership of the public sector; The key motive for such contracting is the transfer of design and construction risks. The model is suitable for projects with considerable operational contents; The model is especially suitable for road building, water supply networks and waste treatment projects; Same as for the BOT model; The model attracts finances from the private sector; It especially attracts debtor finance; It provides a predictable and consistent cost profile; Increases the potential of the accelerated construction programme; Risk transfer is larger, which encourages the private entity to adopt the cost principle during the project design phase; Possible conflict between the planned and the ecological requirements; Contract can be more complex and the tender procedure can be londer; Requires a system of monitoring the management and operations; Cost of new entrance into business if the entity fails to satisfy; Guarantees for financing may be required; Requires a system of management replacement/change; The model is suitable for the projects allowing for charging the consumers for use; Especially suitable for road building, water supply networks and waste treatment projects; Same as for DBFO model; Facilitates the polluter pays principle implementation; Raises the demand risk level and helps generate the income of the third party; Transfer of design and construction risk; The model has a potential to accelerate construction programme; Suitable for large projects with small operational requirements; Suitable for large projects in which the public sector tends to retain operational liability. Same as for DBFO model; Model can be politically unacceptable; Requires a more effective use of alternatives/replacemen ts, for example, alternative routes, alternative options of waste disposal; Possible conflict between the planned and the ecological requirements; Operational risk may increase; The start-up phase is critical; Not attractive for private finance Public-private partnership creates a platform for exploring, forming, financing, and construction of new infrastructure projects that would otherwise be for decades delayed or would never be built. Numerous public-private partnership modalities have been developed so far to respond to different challenges set before the public-private partnership in specific situ ations and sectors. Š3Ë Hence this model of financing is especially applicable to the developing countries with a clear need for building or improving their infrastructure, Š8Ë which encouraged a vigorous involvement of the private sector capital into the infrastructure projects renewal, development, and realization. Š6Ë 3. Implementation of public-private partnership models in traffic projects Some of the most important issues that have a major role the selection of the preferred organizational form public-private partnership in the traffic projects realization result from the size and the scope of the project, possibility of charging the consumers for the service of using the traffic network and the expected level of project risk. The traffic systems meant for mass usage are adequate to the traditional project development and financing scheme, to a larger or smaller extents. Operational costs of one such scheme are relatively low in comparison with the costs of the capital required for the construction of such a traffic system. The traditional contracts on construction are the extention of the now ruling conventional approach and an attempt to transfer the planning and construction risks to the private sector by the fixed-price contracts. Even in such cases the liability for the infrastructure maintenance rests with the public sector. In some cases the construction of especially large road networks can be partly or entirely funded by user charges. The chance to choose the road communication using bridges and tunnels is a visible benefit for the user which is related to the possibility to charge the use of the route selected. In such circumstances the public sector has to make a decision as regards the transfer of project financing liabilities, but also the road toll charges, to the private sector partner. Varied types of contracts are already in use in Europe. The concession contracts for toll highways are appropriate where the private sector will finance a large road network system, collect the toll and bear the risk of the possible charge of such a service. The BOT (BuildOperate-Transfer) contracts are most appropriate where the public sector charges for the services provided, which serves as basis for paying the private-sector investor. The DBFO (Design-Build-Finance-Operate) contracts, or organizational models, are such models where the Government provides incentives for the private entities to build traffic infrastructure, in order to pay the entity off later, by imposing additional obligations to drivers through higher price of fuel or the car registration. The private sector partner takes over part of the risk of collecting the receivables. The users of the road are not charged to pay for the use of the road. This type of model was implemented to build a certain number of major routes in England, Finland, Scotland, Spain and Portugal. This model, however, has a number of weaknesses. They stem from the fact that the public sector still bears a higher risk in charging the dues, as well as that the drivers do not pay the economic price of the built infrastructure. It is in this sense that the implementation of this model may result into a nonrational investment allocation in the infrastructure project realization. 4. Implementation of public-private partnership model in water-power supply projects realization Public-private partnership has been a model of financing the water-power supply sector for decades. Thus the first concession for the development and water-power and waste water treatment plants management was granted to the private sector entity in France 40 years ago. This led to the rise of large and diversified private utility companies. The EU Drinking water directive and the Urban areas waste water directive had a significant impact upon the changes in terms of the public sector liability concerning these issues. Meeting the requirements of the Directives means investing considerable capital into new facilities of the water-supply network and the waste water treatment capacities, in a large number of countries. Hence the countries that have not so far included the private sector into the water supply and waste water treatment operations now analyse the private sector potentials and its financing capacity in order to meet the requirements of the Directives. Considerations on the selection of a preferred form of public-private partnership in the water supply project sector are similar to those characteristic of the traffic sector, hence they also take into consideration the size and the scope of the project (including operational contents), possibilities of collecting the dues from the consumers and the expected level of risk transfer. The construction of a water-supply network or a waste water treatment plant using the public-private partnership model is usually related to the level of availability of information on the structure and operation of the existing networks. If the available information is not sufficient, then the traditional agreements on financing and construction of such facilities may prove to be more adequate. On the other hand, contracts on water supply and building the waste water treatment plants are most often adequate for the BOT (Build-Operate-Transfer) and DBFO (Design-Build-Finance-Operate) models. Besides, concession contracts too are characterised by a specific form of execution, that is, where it is possible to introduce the user charge. The water supply network facilities and the waste water treatment plants are not suitable for the traditional ways of project realization. The risk of the increase in the complaxity of the treatment process rests with the public sector and is not included into the design flow of these processes. 5. Implementation of public-private partnership model in landfil projects realization The implementation of public-private partnership is stimulated in those sectors in which the burden on the public sector has increased significantly. This is especially evident in the urban waste disposal projects. Due to economic and ecological reasons, public agencies tend to abandon solving this problem by building landfils, which used to be a traditional way od waste disposal problem solving. New methods of waste treatment, such as conversion of waste into useful energy or recycling, require substantial investments and specialzed technical skills, i.e., know-how. Considerations on the selection of the preferred publicprivate partnership form in the landfil building projects sector are similar to those in the traffic and water-suply sectors. They include the size and the scope of the project (including operational contents), the possibility of user charge and the required level of risk transfer. The projects in the waste treatment sector are more adequate for higher-developed forms of public-private partnership in which it is possible to transfer a significant level of operational risk. The implementation of a concession allows for the financing of the project on the polluter pays principle; hence the process of risk assignment related to the scope of waste materials. This type of project financing is predominant in Great Britain. 6. Conclusion A successfully selected public-private partnership model is one in which the liability, obligations and risk distribution are assigned to the entity that can manage them best. Hence it is important that the contract should be carefully planned and defined and an adequate monitoring and regulation of liabilities agreed to in the contract be ensured. The Government sector that analyses the opportunities to start a public-private partnership should first take into consideration the technical, the financial, the economic, and the legal feasibility of the project and adjust the goals of the Government to the interests of the private investor. The best publicprivate partnership option can be selected only via a comprehensive feasibility analysis, and this analysis will in turn start the remainder of the process. Well concieved and defined project structures of public-private financing allow for the creating of an appropraite monitoring and performance measuring mechanism via the set key performance benchmarks. cy employing the resources in private sector ownership. Here we primarily mean capital and a specific knowhow based on the experience in one business field. The private sector is considered to be more successful in doing business and copes better with the burden of risk management (such as construction risk or standard quality maintenance risk), whereas a regulatory risk is better managed by the public sector. A correct estimate of the strenghts of each of the involved parties and their managerial skills directly impacts the selection of the public-private partnership model as well as the success of of the entire project. REFERENCE Š1Ë Akintoye A, Beck M, Hardcastle C: Public Private Partnerships: Managing Risks and Opportunities, Blackwell Publishing Company, 2003. Š2Ë Benković S, Milosavljević M, Barjaktarović Rakočević S: Partnerstvo javnog i privatnog kapitala u finansiranju infrastrukturnih projekata, Megatrend revija, Vol. 7 (2), 2010. Š3Ë Deloitte: Closing Americas Infrastructure Gap: The Role of Public Private Partnership, A Deloitte Research Study, 2009. Š4Ë European Commission: Guidelines for Successful Public-Private Partnerships, January 2003. Š5Ë Finerty J: Project Financing-Asset Based Financial Engineering, Wiley & Sons Inc, New Jersey, 2007. Š6Ë Gil N, Beckman S: Infrastructure Meets Business: Building New Bridges, Mending Old Ones, California Management Review, Vol. 51, No. 2, 2009. Š7Ë Jupp B: Working Together: Creating a Better Environment for Cross-sector Partnership, Demos, London, 2000, pp. 13-14. Š8Ë Merna T, Njiru C: Financing Infrastructure Projects, Thomas Telford Publishing, London, 2002. Š9Ë Miller J. B: Applying Multiple project Procurement Methods to a Portfolio of Infrastructure Projects, Procurement Systems: A Guide to Best Practice in Construction, E&N Spon, 1999. Š10Ë Mullin S: Public-Private Partnerships and State Economic Development, US Economic Development Administration, Philadelphia, 2004. Š11Ë The World Bank and the International Finance By meeting these preconditions the ultimate goal of partnership is achieved the improved project efficien Corporation: Investing in the Environment, The World Bank, Washington, D.C, 1992. Measuring Effectivness of KM Projects UDC: 005.94/.95 ; 330.341:005.336.4 Prabhakar Tunuguntla 1, Sanja Berjan 2 1 Al Gihaz Contracting, KSA, prabhakar.tu¿gmail.com 2 Coca Cola HBC, sanjaberjan¿hotmail.com XII International Symposium SymOrg 2010, 09 - 12 June 2010, Zlatibor, Serbia In todays ever changing global economy organizations are finding it difficult to stay competitive. Under these circumstances it is no wonder that organizations are considering Knowledge Management (KM) as one of the possible solutions. The success stories and benefits reaped by some organizations through effective Knowledge management luring others to impalement one or the other KM systems. It is difficult to determine if a particular KM project is successful or not, as many of the benefits are cumbersome to quantify and subjective in its nature. Also, some organizations leave the projects midway as they fail to see financial benefits of the implementation. In this paper we discuss various methods and metrics to monitor KM project implementation and to develop a methodology to determine impact of KM project on financial results. We categorized these metrics into Three groups; first group of metrics focuses on measuring Knowledge acquisition (the amount of information), second group on measuring effectiveness of KM systems (easy to access, system response time) and third group of metrics focuses on measuring success of overall project. In the process of developing methodology to identify impact of KM on financial results, we proposed a methodology similar to Event Study methodology used to measure abnormal stock returns caused by firm specific as well as economy wide events. 1. Introduction At the very beginning of this article we give basic definitions of terms which will be used: measure is A reference standard or sample used for the quantitative comparison of properties, e.g., the standard kilogram is maintained as a measure of mass, while metric is A system of related measures that facilitates the quantification of some particular characteristic. It is obvious that measure with no comparison gives very little or no information at all, thus this paper will deal with metrics for Knowledge Management (KM) initiatives. Before tackling questions on KM we must give definition on Intellectual Capital (IC). In recent years many scientist are challenged to give standardized definition of IC as it became necessity of modern business. According to the definition given by Steven M.H. Wallman, SEC commissioner, IC are assets currently valued at zero on the balance sheet and represents not only human brain power, brand name or trademarks but also assets bought long ago, booked at historic price but during time transformed into prime real estate. Another definition of intellectual capital is given by Brooking (1996). Intellectual capital is the term given to the combined intangible assets which enable the company to function. In todays ever changing global economy many companies rely on intellectual assets in order to generate revenue, like software companies where products are developed and delivered electronically. Therefore, now days it became obvious that companys balance sheet shows only part of companys value. Having said this, it is clear that tangible assets are loosing their dominance in front of intangible assets and importance of proper measurement of their value is raising many accounting questions, especially in the field of brand names, production process, distribution channels, trade secrets etc. Business writer William Davidov (The Virtual Corporation) says: Theres a need to move to a new level in accounting, one that measures companys momentum in terms of market position, customer loyalty, quality,etc. By not valuing these dynamic perspectives, we are misstating the value of a company as badly as we were making mistakes in addition. 2. KM metrics Process of measuring intangible assets (IC) is connected with KM initiatives, as it is assumed the outcome of KM initiative has impact on IC. Impact of KM initiative can be decribed by different approaches, such as: 1. House of Quality, (Hauser & Clausing 1988) 2. Benchmarking approach (American Productivity Center (APQC)) 3. Balance Scorecard, (Kaplan and Norton 1996) 4. Intangible Asset Monitor (IAM), (Karl-Erik Sveiby 1986-87) 5. Scandia Navigator, (Edvinsson&Malone 1997) 6. IC Index (Roos, Dragonetti&Edvinsson 1998) 7. Technology Broker (brooking 1996) 8. Citation-weighted Patents (Hall, Jaffe&Trajtenberg 2000) Some of these methods will be disscuses here, while others are beyod the scope of this paper. objectives and define which best practices can be successfully implemented. House of Quality is presented in a form of matrix with a shape of a house, where roof of house represent relationships while walls characterize processes. Left wall of the house, which are outcomes of KM initiative, represents goals and objectives whereas right walls of house stand for weights of the outcomes. Center of the house stands for correlations between the metrics and the performance outcomes. By analyzing those correlations management can decide on which areas of KM to focus in order to achieve highest results and influence overall performance of the company. This matrix actually measure how customers desires are linked to companys capabilities. Example of House of Quality is available at http://www.qfdonline.com/templates/qfd-and-house-of-quality-templates/. This method is also recognized as Quality Function Deployment (QFD) since it is using matrix to correlate customer needs with capabilities of company to satisfy those needs. More details are available at http://www.qfdi.org/ . This tool concentrates on maximizing customer satisfaction by translating customers needs into business processes throughout company. Furthermore, it compares with competition and optimizes features which are delivering biggest competitive advantage to the company. Benchmarking originates from Xerox Business Systems in the late 1970s when Japanese companies where able to produce similar products with lower price and better quality, then those produced in USA. Therefore, Xerox wanted to explore if it is possible to imitate work done by competition. Two general types of benchmarking exists, one is internal and the other external. An internal benchmarking deal with comparison of departments within same organisation while external compares different companies. Essentially, benchmarking is comparison tool identifying best practices within comparable sectors and emulates them in order to achieve the highest results. American Productivity and Quality Center (APQC) benchmarking methodology was developed in 1993 and it is known as one of leading methods for successful benchmarking. The KMAT was developed by APQC and Arthur Andersen in 1995 as a tool for selfassessment. Main idea behind this method is to classify companies to be compared with, identify strategic The Balance scorecard method (BSC) was developed by Kaplan and Norton in 1996 with an aim to help organisations in achieving equilibrium between their vision and real life targets, presented by performance indicators. These indicators are spread between following dimensions: Customer, Financial, Internal Business Processes and Learning and Growth. Within each dimension, further development in the area of the goals, metrics, targets and initiatives is possible. For example, if we observe financial dimension, goal can be profitability growth as a major goal to be achieved; metrics can be monitored in some specific area like change in net margin; target is particular result to be achieved e.g. growth in profit margin in amount of 3%; initiatives are projects or actions which helps achieving desired goals. Even though this method was imagined as performance improvement metrics, it can also serve as strategic management system, since each organisation can adapt it to its own needs. Therefore, each BSC method should be custom made for each and every organisation. Now days some tools and templates are available to help organisations implement BSC initiative. at his prof. Sveiby It is interesting to mention similar method called Intangible Asset Monitor (IAM) developed by KarlErik Sveiby in 1986-87 in Sweden, since both concepts are developed independently of each other. Similarities and differences are explained by author of IAM himself, website http://www.sveiby.com/articles/BSCandIAM.html. In this article we will just mention that both methods categorize intangible dimensions into four, both agree on idea that strategy must be the driver of the metrics designed, change should be measured and both approaches should improve learning and growth. On the other hand Svieby says: the origins and the foundations of the concepts beneath the surface are very different. I would like to think of the IAM as more of a Knowledge Era measuring instrument, whereas I regard the BSC as more Industrial Era. Therefore BSC users will probably develop non-financial indicators that are different from those using the Intangible Assets Monitor. Swedish insurance company Scandia published in 1994, together with annual report, additional report called Visualizing Intellectual Capital in Skandia (Skandia, 1995) which opened new area in the field of measuring intellectual capital. This broadened form of accounting resulted Scandias ability to transform in tellectual capital into financial capital. At Skandia the intellectual capital ratios are grouped into major focus areas: the Customer focus, the Process focus, the Human focus and the Renewal & Development focus, presented in the Picture 1. Reason for giving the name Navigator is twofold: firstly, it should guide an organization how to manage intellectual assets and secondly, it should guide people through set of measures that represent the true resources, capabilities, and future potential of an organization. Picture 1: Scandia Navigator (Source: Visualizing Intellectual Capital in Skandia, Supplement to Scandias 1994 Annual Report) 3. Quantifying KM benefits Wen-der Yu et.al (Quantifying benefits of knowledge management system - A case study of an engineering consulting firm, published in ISARC 2006) developed quantitative benefit models for KM systems. These models quantify 3 types of benefits. Where in data was collected through questionnaires answered by KM system users. (1) Time benefit Saving of time (TB) required to solve a problem with KMS (NDS) compared to with the time required in the traditional process (NDT) TB% = (NDT -NDS) X 100/ NDT (2) Man Hour benefit Saving of man-hours required (MHB) to solve a problem with KMS (STT) compared with the man hours required in the traditional process (TTT). Traditionally the problem is solved via meeting. Where as in KMS, the problem is posted in a Community Of Practice (COP) and all members of COP participate in discussion to solve problem. Thus man hour benefit is derived from avoidance of meetings. MHB% = (TTT STT) * 100 / TTT TTT = NDT * (MPT * OT * ∆%) + (MNT * MTT * MPNT) STT= ΣORTS + HRTS + FATS Where, TTT is total man hours required to solve problem traditionally NDT is working days required for traditional problem solving process MPT is number of participants in traditional process OT average daily working hours of meeting participants ∆% is the average percentage of daily working hours spent by meeting participants in solving problem MNT is the total number of meting required to solve problem MTT is total number of meeting required to solve problem (3) Cost benefit The cost benefit measures difference of cost between traditional approach (TTC) and KMS (STC) approach. CB% = (TTC STC)* 100/TTT TTC = ŠNDT*(MPT*OT* ?%) + (MNT*MTT*MPT)Ë * EAP STC = ŠΣORTS + FATSË* EAP Where, EAP is the average hourly salary of the participants ($/hr) TTC is the total cost of problem solving in traditional approach ($) STC is total cost of problem solving in KMS approach 4. Estimation of ROI of KM projects In 2003, BEI consulting developed Cost / Benefit model to evaluate Return On Investment of (ROI) of KM initiatives. Cost / benefit method divides benefits into two main categories, those are: 1. Tangible benefits like increased quantity of work, cost savings, faster product cycle time etc. 2. Intangible benefits like increased customer satisfaction, quality of decisions, employee satisfaction etc. Tangible Costs are categorized into: Purchase cost, Implementation cost (including change manage ment), Maintenance cost. Further these costs are subdivided into: 1. Sunk Costs (Costs expended to date on the status quo alternative that are not recoverable) the paper suggests that Sunk costs should not be included in the actual ROI calculation 2. Recurring and non recurring costs 3. Cost avoidance (cost avoidance is term used to describe those costs that are avoided by selecting a particular alternative To summarize the model following table is prepared: Year  s g n i v a S t s o C e c n a d i o v A t s o C s t s o C Purchase Development Transition Maintenance Purchase Development Transition Maintenance Sub Total (1) Purchase Development Transition Maintenance Sub Total (2) Return Per Year (1-2)  s w o l F n I h s a C s w o l f t u O h s a C             ROI = (A-B)/B         Total   A  B (A-B) 5. Methodology to determine impact of KM projects on financial results The earlier methods that are used to determine ROI and benefit quantification used qualitative data as input. Also these methods consider Knowledge Management projects as stand alone. As research suggest KM projects are more effective when KM project implementation objectives are aligned with overall business objectives of the firm. Keeping this concept in mind we propose a methodology to confirm impact of KM projects on financial results. Some of the terms used in the methodology are Return on Capital Employed (ROCE): It is a ratio that indicates the efficiency and profitability of a companys capital investments. ROCE should always be higher than the rate at which the company borrows, otherwise any increase in borrowing will reduce shareholders earnings. ROCE is Calculated as, ROCE Market Beta (ββ) Beta is a statistical measure which indicates risk of a stock. It measures volatility of individual stock with respect to the market. Beta is calculated from historical stock prices through regression analysis. By definition, the market has a beta of 1.0. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stocks beta is less than 1.0 Assumptions 1. Knowledge management has impact on many areas of firm operation thus effects over all profitability of companies 2. Only firm wide implementation is considered as starting point for study 3. Benefits of Knowledge management can not be realized in shorter duration, thus a period of approximately 2 years to be studied 4. As Knowledge management is mostly internal affair of a company, Return on Capital Employed (ROCE) is considered as a measure instead of market price (used in Event study methodology) Methodology Step - 1: Event Window Event window is the period during which firms ROCE is observed. Each event widow consists of financial quarters. We selected quarter as measurement because most of the firms publish quarterly financial results. By using this legal data we can calculate ROCE. The quarter in which firm wide KM project implementation started is considered as quarter Zero. Quarterly ROCEs before implementation is estimation window and Quarterly ROCEs after implementation is started as post event window Event window 1 Š-1, 0, +1Ë Event window 2 Š-2, 0, +2Ë Event window 3 Š-4, 0, +4Ë Event window 4 Š-8, 0, +8Ë Step 2: Estimation of normal return Normal return is expected ROCE if the KM project is not implemented. In order to calculate normal ROCE we can use industrial average ROCE. ROCEE = βf * ROCEI Where, ROCEE = Expected / Normal ROCE of firm that is studied βf = Market Beta of firm ROCEI = Industrial average of ROCE Step 3: Calculation of abnormal return Abnormal returns are the returns from the capital employed because of KM implementation. This is difference in estimated / normal ROCE and actual ROCE. ROCEA = ROCEO - ROCEE Where, ROCEA = Abnormal ROCE of firm that is studied ROCEO = Observed ROCE ROCEE = Estimated / normal ROCE Step 4: Calculation of cumulative abnormal return (CAR) Cumulative Abnormal return on Capital employed is calculated as ROCE CAR = T2 π i= T1 (1+ROCEAi) * (1+ROCEA(i-1))-1Ë Where, ROCEAi is abnormal ROCE of ith quarter ROCEA(i-1) is cumulative product of abnormal returns of all quarters prior to ith quarter 6. Conclusion A positive CAR indicates successful KM project implementation while negative CAR shows unsuccessful KM project implementation. It is crucial to note that negative CAR does not mean that Knowledge management is leading to losses. Instead companies should focus on other means and ways to stay competitive. This paper gives an overview of some methods known so far in theory and practice, at the same time proposing method which needs to be tested and validated by studying results of companies that implemented KM projects. Furthermore, the use of market Beta to calculate normal return (ROCE) also needs to be validated. BIBLIOGRAPHY Š1Ë A. Kankanhalli, B.C.Y. Tan, Knowledge management metrics: A review and directions for future research (2005) Š2Ë Chris Collison, Geoff Parcell, Learning to Fly: Practical Knowledge Management from Leading and Learning Organizations , Willey (2001, 2004) Š3Ë John Ragsdale, The ROI of Knowledge management Building a case for KM investments An Executive insight from Service Support Professional association, (2008) Š4Ë Kimiz Dalkir, Knowledge Management in Theory and Practice, Elsevier Butterworth-Heinemann (2005) Š5Ë Luthy, D.H. Intellectual capital and its measurement, paper presented at the Asian Pacific Interdisciplinary Research in Accounting (APIRA) Conference, Osaka, (1998) Š6Ë Scandia, Visualizing Intellectual Capital in Skandia, Supplement to Scandias 1994 Annual Report, (1995) Managing Knowledge-Based Initiatives, Elsevier Butterworth-Heinemann (2008) Š8Ë Tom Tobin, The insiders guide to Knowledge Š7Ë Stacy Land, management RIO, A service white paper (2003) Management of Receivables in Function of Support to Business Success UDC: 658.14/.17 ; 657.21 Snežana P. Knežević, Veljko Dmitrović, Marko Jovanović, Tijana Obradović Faculty of Organizational Sciencies, Belgrade The aim of this study is to identify the fundamental segments for the proper receivables management. Adequate collection of receivables is generally, after profitability, the second most important measure of success of business. Therefore, companies are obliged to carefully take account of their balance of trade and to manage them properly, so that the companys liquidity would not be called into question. 1. Introduction The subject of this paper includes the key aspects of the management of receivables collecting from the customers, since thay are one of the most important liquid assets of a company. An adequate collecting of receivables from customers requires a high quality accounting system. The receivables from customers are a very important component of investments into circulating assets which needs to be converted into another form cash assets through receivables collecting, and in as short a time as possible. At any moment of the companys operations the profits earned may be trapped in stock supplies or in debtors, thus becoming unavailable to the company. As a balance component, the receivables (from the aspect of the company as a supplier) represent the inflows that will in future come as a compensation for the products, goods and services sold, however, with the risks emerging as possible non-negotiable receivables. An adequate collection of receivables is a significant precondition for an efficient business doing of any company. Planning cash flows, a timely adjusting of cash inflows and outflows, is impossible without an adequate planning of collecting receivables from customers, on a daily basis. The above mentioned is even more important in the conditions of the economic crisis and the problems with the company solvency. Cash is indispensable when business is to expand or short-term financial problems are to be overcome. The sold products, goods or services mean income for the company, and will mean an inflow when the sales are cashed. (the most important issue in an accounting dealing with income is to define the moment in which the incomes are recognized. The recognition of the income from the transactions of the sales of goods, service delivery and the usage of the entity assets by the others are treated by the International Accounting Standard (IAS) 18 Incomes. Under this standard, income is recognized when the inflow of the future economic benefits into the entity is probable, and when these benefits can be realiably/positively measured. See more in Š1Ë). Making it possible for the customers to make deferred payment has an important role in income generation, however, the consequence may be the rise of costs and a delay in receiving money. Contrary to this, that is, in the circumstances when the company takes the money from the customers before it delivers the goods or a service to them, it is liable to deliver these goods or services in a defined period of time. Every company will tend to collect their receivables as soon as possible and without losing their customers. Customers are becoming an ever more important factor in the growth of the business in the conditions of globalization. Š2Ë A relative importance of receivables from customers as a percentage of their total assets depends on a number of factors, such as: company business (competence), season, whether the company supports long-term financing, the defined credit policy, etc. The practice of deferred payment is considered to be one aspect of crediting. The receivables from customers, dependant and associated legal persons and other buyers in the country and abroad and on the basis of the sales of products, goods and services belong to the short-term receivables category. 2. Identifying key segments of receivables management Circulating assets are made up of three parts, namely: 1) stock supplies, 2) receivables from customers and other receivables, and 3) cash and cash equivalents. Each of the assets is characterised by a different level of solvency. The liquidity of assets is defined by: 1) the time span in which the assets will be transformed into money (cash); 2) the number of phases one type of assets has to pass in order that it should be transformend into cash; 3) the risk level that these assets will ever be transformed into liguid assets. Receivables from customers should be viewed through several segments (Figure 1). In order that the important differences between the types of receivables from customers, they are classed into three groups: 1) unrecovered debts (usual date of maturity); 2) bills of exchange received; and 3) other receivables from customers. Unrecovered debts are a result of the sales of products, goods or services, and the companies usually expect to collect these receivables within 30 to 60 days. Naturally, the time of payment can, under the contract signed or according to the usual business practice between the customer and the seller, be shorter or longer. The bill of exchenge as an instrument and a security of payment has a twofold function: (1) instrument of payment and (2) instrument of security of collecting receivables. The bill is issued as an evidence of liability. It is issued for a period of 60 to 90 days or longer. Figure 1. Receivables from customers per segments of observation Other receivables from customers refer to the activities that are not the result of business operations, e.g., debiting the customers for overdraft interest. Two accounting problems related to unrecovered receivables (debts) are: 1. The moment of recording the unrecovered receiv ables from customers; and 2. Valuating of unrecovered receivables from cus tomers. The initial recording of unrecovered receivables is the moment when the realization is invoiced. The sales discounts reduce receivables from customers. The seller may offer conditions, such as discounts, to motivate the buyer to make earlier payments. For example, the 2/10 conditions mean that the customer qualifies for a 2% discount if he pays in a period not later than 10 days. The recovery of goods from the customer also reduces the unrecovered receivables. Relevant for the valuation of receivables is the net re8alized value, that is, in practice (1) invoice value, or (2) invoice value reduced for the amount of estimated sum that is considered unrecoverable. (Pointed out by Marko Fabris, consultant.) An important issue that has to be answered is: in which way should a company report the receivables from cus tomers in its financial statements. This is sometimes rather difficult since part of these will remain uncollected. The issue seems to be even more complax if we have in mind that financial statements present a financial standing and financial results of the entity (IAS-1), which are the issue of interest of a number of stakeholders (internal and external) for the purpose of economic decision making. Although each buyer is obliged to fulfill the credit conditions set by the seller, it inevitably happens that he may not be in a position to do so, as the buyer has experienced a fall in sales due to the aggravation of economic conditions on the market. The accounting practice uses two methods to define uncollected receivables: 1. Estimate of the management (In estimating uncollected receivables the management needs the information support of the financial-accounting and legal sectors in the company); and 2. The percentage of due receivables, i.e., more than 60 or 180 days, i.e., in accordance with the accounting policy. tors especially focus upon the following moments in the testing phase: a) the company (partnership) failed to adequately defer incomes from sales, hence the incomes from sales and receivables from customers are overrated; b) the company failed to apply correctly or did not apply at all the correct exchange rate to exports receivables (receivables from customers in foreign exchange); and c) the company (partnership) failed to test the negotiability of the receivables, that is, failed to calculate the correction of the value in accordance with the ruling accounting policies. It is of special importance that the managers in the company, supported by the financial accounting function, identify their economic liability and the social importance of auditing and submit valid data to the persons conducting external auditing.) When accounts are classified by maturity, anticipated losses for receivables are identified by adding a percentage on the basis of previous experience, as a total for each category. The longer the period of customers debt, the lesser the probability that the debt will be collected. The result is that the estimated percentage of uncollected receivables rises in accordance with the number of days by the currency. Generally speaking, the receivables analysis should include the folowing aspects: Two methods can be implemented to write off the unrecovered debts: (1) the method of direct write-off; and (2) the method of reconciliation/settlement. a) receivables structure according to maturity; b) receivables structure by debtors (customers); In case of the method of direct write-off, if the company finds that an account is not negotiable, it assigns it to expenditures, due to the fact that receivables are valueless, that is, the company deals with the income statement. The implementation of the reconciliation method in entering various (impaired) receivables means that the level of uncollected receivables is assessed at the end of every accounting period. Unlike the former method, this method allows for a better reconciliation of incomes and expenditures in the income statement. The analysis of receivables is a basic precondition of an adequate receivables managemnt and for that purpose the company should work out an audit of receivables by currency (maturity), which will serve as a report on the maturity distribution of uncollected receivables. (When auditing the financial documentation of a company for which they are conducting the auditing activity, the auditors pay special attention to the analysis of the age and quality of receivables from customers. It is important to note that in identifying the risks for the receivables from customers balance sheet position the audi c) receivables structure according to the amounts due; d) receivables structure according to the type of the business transaction they refer to products and service or for each group of similar products and services; e) receivables structure according to the territory they were incurred on, that is, according to geographical regions; f) structure of key debtors (customers). Under the International Financial Reporting Standards IFRS 8 the business segments within the information on the segments to be disclosed include the information on the key customers, since they are the source of a significant risk concentration. 3. Credit policy and receivables liquidity rating The creation of credit policy is an important segment of an adequate receivables management. A critical point in the process is making a decision as to who qualifies to be granted a credit and who does not. If the credit policy is too strict, it may result in the fall of sales; however, if it is too loose, the company may grant a credit to a customer who will pay it off either very late or never. The basics of the credit policy are the following: 1. Conditions of sale; 2. Credit standards and their analysis; and 3. Receivables collection policy. The conditions of sale mean that the following ahve to be defined: 1) the credit period, 2) the discount period, 3) discount for cash, and 4) credit instruments. Usual in the business practice are deferred payments in a defined term whose time span is conditioned by a usual business practice, by the stability of economic conditions, by the business stability of a company, etc. The length of the credit period is affected by various factors such as: demand, profitability and standardization, credit risk, competition, sales volume, customer type, etc. The discount period is a period during which the customers qualify for a discount for cash that is a discount on the sales price of the product, goods and services granted to the customer who observes the terms of payment and pays timely. The credit instruments are the records on indebtedness. The most frequently encountered credit instrument is the invoice with the delivery note sent to the customer together with the products and signed by the customer as the evidence that he has received the goods or products. The credit policy is linked with the companys marketing strategy. The best way to increase the income is to attract a larger number of customers or increase the volume of sale. For that purpose, it is necessary that the company should implement a consistent marketing strategy that finds an adequate customer profile for the product or a service provided by the company. In creating the sales policy it is necessary that selected marketing strategies for increasing the number of customers should be observed, for example: 1) attracting new customers in order to increase the market share; 2) incraesing the market demand by drawing a larger number of customers to the market, and 3) capturing new markets in order to increase the number of customers. If companies wish to reduce losses in sales, they may reduce the standard conditions for granting credit. They even may demand from certain customers to provide letters of credit (in this country, letters of credit are generally used in external transactions) or bank guarantees. A letter of credit is such an instrument of payment by which the issuing bank, i.e., the originating bank is bound to effect the payment or authorise another bank (correspondent bank) to pay to the third party the beneficiary of the letter of credit, upon the advice of the instructing party, on commission on its own behalf and for the benefit of the client-customer, or for its own benefit (on its own behalf and benefit), on the basis of signed documents and according to contracted conditions (or without documents). Under the Obligation law, the bank guarantee is a written statement by which the bank is obliged to pay the due sum to the guarantee beneficiary in case the third party does not fulfill its obligation on maturity, and on condition the conditions stated in the guarantee are satisfied. High risk bearing customers may be required to pay a larger portion of the sum in cash prior to the delivery of goods or products or prior to the service delivery. Besides, the companies may demand that banks and suppliers issue references on the basis of which they can rate the customers financial solvency. In case of new customers, it is important that their references are closely examined, whereas for the existing customers it is important that their financial solvency is checked periodically. Š3Ë The companies may grant a hire-purchase sale in exchange for the formal credit instruments already mentioned as a form of accounts receivables known as bills of exchange. A bill of exchange is a written promise that a defined amount of money will be paid on request or in a defined time. Bills of exchange are used in cases where the value of the business transaction exceeds the usual limits as well as in clearing the uncollected receivables. The bill of exchange states a nominal amount that incorporates the sum due and the interest receivable. Bills of exchange can be stored until their maturity date and then the value of the bill receivables from the customer with accrued interest is due to be collected. If the drawee fails to answer his obligations, the drawer (person to be paid) has to take appropriate steps. The bill of exchange is paid when the drawee pays the total sum on the date if its maturity. It is the obligation of companies to state their accounts receivable in their financial statements correctly. It is especially important that quality and risky and contested receivables be stated separately so that the financial statement at the end of the period, or balance sheet, should show a realistic state of the assets. The credit standards are the minimum conditions the customer has to fulfill in order that he should be granted to buy on credit. Here it is important to analyse the customers character on the basis of how he answered his financial obligations to the suppliers in the previous period, as well as whether suppliers have any disputes in court with him and if so, how they were resolved. The credit analysis is about collecting credit information on the customer, followed by an analysis. The credit granting companies should define the payment period and present it to their customers, with special attention paid to the terms of payment offered by the competition. For example, they may grant the same terms as the competition and simultaneously offer a substantial discount to the customers who effected their payments in a period shorter than the credit period granted. The commercial credit is an important instrument of financing a company and has so far been thoroughly studied in the relevant literature; however, the focus was upon financial subtleties. For an adequate receivables management, it is of special importance that a model should be created to identify the response to obligations to suppliers as well as receivables from the customers in case of the changes in the costs of stock, profitability, risk and solvency, respecting all the specific features of the concrete company along the way. turnover and 2) the average receivables collection period. Š4Ë The coefficient of accounts receivables turnover serves to test the ability to raise cash from the financially solvent customers. In other words, it shows the average of times per year the receivables are collected. The formula to calculate this coefficient is the following: (1) where: ART = accounts receivables turnover; NISC = net income from sales (net incomes from sales make the total sales reduced for the discounts and returns of products and goods) on credit (without changes in stocks of performances); NARCOB = net accounts receivable from cus tomers upon the opening balance; NARCCB = net accounts receivable from cus tomers upon the closing balance. A higher coefficient means that cash is collected faster or more efficiently. A too high turnover of negotiable receivables, however, may show that the credit policy is too strict, or that the credit period is too short, which may cause a loss in sales to good customers. When problem customers are identified, the company takes steps to notify them by phone, in writing, and finally by taking them to court. The average collection period serves to track the average time the debtors need to pay their dues. This indicator is calculated using the following formula: In order to improve the sales conditions the company offers a broad range of commercial and financial discounts. The company will, for example, decide on offering a trade discount after it has defined the opportunity cost of using the discounts offered. Namely, if the benefits from using such a discount are larger that the benefits the company would have if it engaged these assets in another alternative, the company will decide in favour of the discount. (2) where: APRC = average period of receivable collection; NDY = number of days per year; ARTC = accounts receivable turnover coefficient. One manner in which the companies retain the loyalty of their customers is to provide incentievs for purchasing goods or services in that the seller companies offer coupons the so-called points the client can exchange for dicounted goods or services. The calculation of an average period of collection is an important part of the companys cash management system. Naturally, we also have to bear in mind that the sales cycle may be shorter than a year, which depends on the type of business. Two financial ratios are used to estimate the receivables liquidity from customers, i.e., the estimate on collection data: 1) coefficient of accounts receivable If the collection period is inordinately long, it may result in the company having to borrow the short-term assets. In order that the collection period be shortened, customers should be offered different modalities of discounts and those that delay overdue payments should be pressured to pay. It is, however, important to note that the company should be cautious and selective in its attempts to collect receivables, in order that the customers should not turn to other suppliers, due to excessive pressure. Receivables collection can be accelerated implementing a broader range of measures such as: 1) setting stricter credit standards, 2) shortening the credit period, 3) lengthening the discount period, 4) raising the percentage of discount for cash, 5) using factoring, and 6) using forfaiting. Factoring is a financial instrument by which the factor (the factoring institution) finances the company on the basis of the future, undue receivables, incurred from the sales of goods or services on the home or export markets. Factoring is really useful in the circumstances when the collection cycle is long. The commission for the factoring companies usually ranges from 1% to 4%. Mian and Smith (1992) and Smith and Schnucker (1994) argue that factors can manage risk in a considerably more efficient manner, i.e., reduce the risk. Forfaiting actually means buying out others debts. This activities can be performed by banks, insurance companies, and certain other specialized companies. Companies can sell their receivables at a discount to specialized institutions engaged in these operations, which is characteristic of the developed market economies. Forfaiting is rather similar to factoring, the difference being in that receivables are sold abroad instead of at home. The company exporter of goods sells its receivables abroad to a financial institution engaged in forfeaiting, most often a certain business bank registered for this type of business. Factoring usually has a broader range in comparison with forfaiting. 4. Other important issues In order that the modalities of the customers liability towards the company management on the national level should be explained in a comprehensive way, it is important that the following instruments be explained: 1) compensation, 2) cession, 3) assignment. In addition, it is important to note that there is a possibility that re ceivables become obsolete, that they are collected by debt enforcement or a receivables write-off . The customer liabilities to the company can cease by compensation. Compensation is a way to relieve a client from the obligation by claim offsetting between the debtor and the creditor. For this to be obtained, the following conditions are to be met: 1. both receivables are in currency or other exchangeable assets of the same nature and quality; 2. both receivables are mature; 3. a compensation statement or a written submision for compensation is given in; 4. the receivables are mutual; 5. the receivables are compensatory (without any le gal restrictions). If more than two persons participate in the compensation business, we are talking about a multilateral compensation. In many cases, bilateral compensations are replacing the multilateral ones in the conditions of aggravated collection of receivables. Compensation may be voluntary (contractual) and compulsory. Viewed from another aspect, compensations may be financial (mutual claim offsetting) and commodity ones. In practice, the creditor may be changed as a result of the receivables being assigned by a contract, and this is called cession. This is a legal process in which three persons participate, two of which are related to the creditor, and one is on the side of the debtor. These are: 1. cedent, or assigner the creditor passing his claim to the other person (old creditor); 2. cessionary, or receiver representing the person to whom receivables are transferred (new creditor); 3. cessus the debtor. Cession is characteristic in that it is a two-fold legal and economic business, the contract in which three parties participate the cedent (assigner), on one side, and the receiver (cessionary), by which the cedent passes the receivables due to him from the debtor (cessus) to the cessionary. One instrument implemented in clearing the creditor position of the person with an obligation of performance towards the debtor (however he does not perform this obligation personally, but through the third party) is called an assignment transfer. The assignment is a contract by which the assignor authorises the assignee to act on the assignors behalf for the purpose of performing a certain act to a receiver of transfer assignator, and simultaneously authorises the assignator to receive this act, on his own behalf and for the benefit of the assignor. The performance as the subject of assignment refers, by a rule, to monetary transactions, however, it may include other exchangeables too. It is important to note that assignment as a form does not mean the fulfillment of an obligation; it is necessary that the fulfillment for example, payment of a certain amount of money, really takes place. The Accounting and Audit Act in this country defines that legal persons and entrepreneurs are obliged to cooperate in order to settle certain financial placements, receivables and liabilities at least once a year. Besides, legal persons are obliged to report unreconciled receivables and liabilities in the additional notes to their financial statements. The creditor has to initiate the reconciliation of his receivables with his debtors, whereas the debtor has to check his liability and inform the creditor about it, in a report named the statement of open accounts. If the debtor does not accept his liabilities, he has to make a written statement for each individual amount. If the receivables and liabilities cannot be reconciled, the only solution left to the creditor is to sue the debtor to collect his receivables. Expiry of debts and liabilities is defined by the Obligation law. The general rules that apply to the expiry are the following: with the expiry of debts, the right to claim that a certain liability should be met expires itself; expiry is the state of affairs when the legally defined period in which the creditor is in a position to demand that the liability be met is over; the court cannot rule on expiry if the debtor does not claim it. In this country, the receivables the legal persons claim form one another under the goods and services transaction contracts expire upon a three year period, as do the remuneration claims Š5Ë. For all the expences under such contracts the expiry period is three years. Expiry period is estimated for each individual delivery of goods or the deed or service performed. Enforcement of claims is the obligation and competence of the Central bank to draw the assets from any accounts the debtor may dispose of, without his con sent, and effect the payment upon the execution orders, according to the priority order, and within the same order of priorities, and observing the time of acceptance. The execution orders are issued by the court, tax, customs or other authorities, and the orders themselves may be in the form of securities, bills of exchange or proxies. Enforcement of claims is regulated by a large number of legal acts, the most notable among which are the following: the Law on business companies, the Payment operations act, the Act on execution procedure, the Liquidation law, the Bill of exchange act, the Tax operation and tax administration act and various sublegal deeds decrees, resolutions, and instructions from the National Bank governor. Subject to enforcement of claims are two types of debtors: 1) legal persons with their accounts with the banks, and 2) physical persons that perform a certain business and have their accounts with the banks. Enforcement of debts is performed by drawing the money from all the debtors accounts, in domestic as well as in foreign currency. Enforcement of debts is effected in three phases: 1) receipt and filing the decision and order, 2) the verification of the validity of decisions and orders, and 3) decision entry. The problems with the solvency of the companies in this country are rather serious, since the accounts of one out three firms are frozen. (It often happens in domestic practice that not even blocking of accounts can produce any effects in case of the financial discipline control, since the debtor can easily continue his business through a related party.) One of the key reasons is the lack of coordination of the inflows from the sales of goods, products, and services with the payment liabilities towards the suppliers. In practice, these problems require that multilateral compensations be performed directly or via a mediator the agencies that are paid an agency remuneration in the form of commission to conduct the activities related to the abovementioned compensations. Insolvency is especially a problem with small firms and entrepreneurs who do not have an easy access to financial sources; delay in payments for them may mean their going out of business. Receivables write-off is effected in cases there is a high probability that the firm will not be in a position to collect all dues from its debtors under the contracted conditions. In such circumstances, it is necessary that the book value of receivables is brought to an estimated ne gotiable level, directly or indirectly applying the provision for impairment account. The definition of the probablity of receivables collection is the competence of the management of each firm individually. A direct write-off of receivables should be a solution only in case it is certain and documented that the debts are not negotiable. (Cases such as expiry of debts, compulsory settlement, final court ruling etc. are those possible cases in which a direct write-off of receivables is performed, by entering them into the liability side and deleting the debtor from the business books. For the tax purposes, and in accordance with the the ruling legislative in the national environment Š7Ë, the write-off of individual receivables is allowed in that they are assigned to expenditures. This does not apply to the receivables due from the persons that are also creditors, under the following conditions: these receivables were previously included into the debtors income; these receivables are written-off in the tax payers books as uncollectable; the tax payer submits the evidence that he has not succeeded in collecting these receivables under a court decision. In order to prevent the receivables write-off and consequently reduce the companies assets in this country (the customers account actually shows the assets of the seller company that are in the possession of the buyer; see Š6Ë, some steps should be taken in advance. Namely, in case of large transactions with new buyers, it is necessary that a sales contract should be concluded with the buyer, that the contract be secured by a bill of exchange, and that the transactions be done through the current (business) account, and supported by the Serbian Business Register Agency decision on company formation, not older than three months. 5.Conclusion An effective receivables management improves the cash flow and increases the assets available for the companys growth. Receivables collection is the final stage in the sales process, performed after the distribution and delivery. Real terms of payment are defined by crediting conditions the company offers to the buyers in case of sales. The changes in the length of the credit period affect the companys profitability. The task of the financial analysis in sales is to focus the sales function as regards the customer segment to which it offers its products or services in the first place. Good customer relations are important, however, trade is important too. Building customers loyalty requires that the value of the buyer companies be identified. The reviews on receivables due and uncollected according to age structure help managers estimate the future cash inflows, which is, of course, important for their timing with the cash outflows. Besides, the reviews of customers receivables by currency allow for the managers to identify doubtful customers and their accounts. It is necessary that the management should bear in mind that the rise in the risk of credit collecting is a threat of non-payment from the part of one buyer or a group of buyers, which will have a negative impact on the stability of the company itself. Receivables collecting is a crucial phase in the business process, hence its impact upon the companys cash flows and its solvency is of paramount importance. Receivables can be collected in various ways: in contract-defined terms upon maturity; by defined activities towards collecting, in case the buyer does not meet his liability in due term; by bill of exchange the company negotiates with the bank; through the court procedure when the company sues the buyer. In order to accelerate the cash inflow, the companies may sell their receivables to mediators (most often the banks), to raise cash for a new operations cycle. One reason the companies sell their receivables is that these may be the only acceptable source of cash; when the credits on the financial market are expensive, this seems a more adequate solution. In concluding the mediation contracts the banks charge commission in accordance with the percentage of the receivables sold. Factoring is also an important form of crediting and maintaining the receivables collecting from their debtors buyers. Factoring is usually good for the seller, since it improves his solvency in that the seller gets cash before the maturity date, and avoids various financial risks that might emerge in time. Forfaiting improves the cash circulation within the company. Assignment is often used in the conditions of general insolvency, i.e., when the companys current account is frozen. This country should undertake to develop an adequately organized security mechanism for receivables collecting in terms of ensuring that financial discipline. For the time being, the financial discipline is a matter of ethics, or a fair relationship between the buyer and the seller. A good decision making as regards the credit policy requires that we know the companys business, the environmental factors, as well as the economic factors that affect the survival of such business and of accounting concepts on which the companys financial statements are based. REFERENCE Š1Ë Praktična primena MSFI, grupa autora, Savez računovođa i revizora Srbije, Beograd, 2008, str. 574-618. Š2Ë @arkić Joksimović N., Knežević S., Dmitrović V., Andrić T. Kupci kao važan faktor za rast biznisa u uslovima globalizacije, Međunarodna konferencija Biznis i globalizacija, Ohrid, 2007. Š3Ë Videti: http://www.dnb.com. Š4Ë Videti šire: Higgins C. R. Analysis for Financial Management, McGraw-Hill, New York, 2009, str. 59-86. Š5Ë Zakon o obligacionim odnosima, Službeni list SFRJ, br. 29/78, 39/85, 45/89, 57/89, i Službeni list SRJ, br. 31/93, član 374. Š6Ë @arkić Joksimović N., Bojević Arsić V. Računovodstvo, Fakultet organizacionih nauka, Beograd, 2009, str. 101-106. Š7Ë Zakon o porezu na dobit preduzeća, Službeni glasnik Republike Srbije, br. 25/01, 80/02, 43/03 i 84/04. Š8Ë Horngren T. C., Harrison Jr. T. W. Financial and Managerial Accounting, Pearson, Prentice Hall, New Jersey, 2008 Š9Ë Higgins C. R. for Financial Management, McGraw-Hill, New York, 2009, str. 59-86, Analysis Š10Ë Kimmel P. D., Weygandt J. J., Kieso D. E. Financial Accounting Tools for Business Decision Making, John Wiley & Sons, Inc., New York, 2007. Š11Ë Meigs R. F., Meigs B. W. Računovodstvo: Temelj poslovnog odlučivanja, (Accounting: The basis for Business Decisions), Mate, Zagreb, prevod, 1993. Š12Ë Međunarodni standardi finansijskog izveštavanja, IFRS 8 segmenti poslovanja, Savez računovođa i revizora Srbije, Beograd, 2009. Š13Ë Međunarodni standardi finansijskog izveštavanja, IAS (International Accounting Standards) 1 prezentacija finansijskih izveštaja, Savez računovođa i revizora Srbije, Beograd, 2009. Š14Ë Praktična primena MSFI u Republici Srbiji, grupa autora, Savez računovođa i revizora Srbije, Beograd, 2008. Š15Ë Subramanyam K. R., Wild J. J. Financial Statement Analysis, Mc Graw-Hill, New York, 2009. Š16Ë Vaassen E. H. J. Accounting Information Systems A Managerial Approach, John Wiley & Sons, New York, 2002. Š17Ë Zakon o porezu na dobit preduzeća, Službeni glasnik Republike Srbije, br. 25/01, 80/02, 43/03 i 84/04. Š18Ë @arkić-Joksimović N., Knežević S., Dmitrović V., Andrić T. Kupci kao važan faktor za rast biznisa u uslovima globalizacije, Međunarodna konferencija Biznis i globalizacija, Ohrid, oktobar 19-20, 2007. Š19Ë @arkić-Joksimović N. Upravljanje finansijama, Fakultet organizacionih nauka, Beograd, 2009. Š20Ë @arkić-Joksimović N., Bogojević V. Računovodst-vo, Fakultet organizacionih nauka, Beograd, 2009. Š21Ë Zakon o obligacionim odnosima, Službeni list SFRJ, br. 29/78, 39/85, 45/89, 57/89, i Službeni list SRJ, br. 31/93. Š22Ë @arkić-Joksimović N., Bogojević V. Analiza finansijskih performansi preduzeća, Fakultet organizacionih nauka, Beograd, 1998. Š23Ë Sopranzetti J. B. Selling accounts receivable and the under investment problem The Quarterly Review of Economics and Finance 39, 1999, 291301. Š24Ë Bougheas S., Matent S., Misen P. Corporate trade credit and inventories: New evidence of a trade-off from accounts payable and receivable, Journal of Banking Finance, 2008. Hybrid Public Private Partnership Models UDC: 338.49:336.13 ; 334.723 Vladimir Poznanić¹, Miloš Milosavljević² ¹ Faculty of Economics, Belgrade ² Faculty of Organizational Sciences, Belgrade In numerous reports, studies and analysis public-private partnerships are considered to be a key tool for the development of infrastructure and consequently the overall national economy. Therefore, this concept is in the focus of professionals and scholars attention. The evolution of public-private partnership is not yet final, and the different institutional arrangements develop in both the geographical as well as the aspect of time. This paper presents a basic generic model of the relationship between public and private partners in the implementation of infrastructure projects, as well as the possibility of the development of hybrid models. 1. Introduction Public-private partnership is a concept that describes the business relations between the public, the private partners and the third parties in creating public, chiefly infrastructure facilities and services. Its modern history dates back to several decades, however, the concept evolves continually, therefore is the focus of attention of both academics and practitioners in this field. The basis for this interest is in the fact that the demand for infrastructure increases significantly worldwide. In the developed countries IT results from the obsolence of the basic infrastructure and hence the need to replace the depreciated property and equipment in the near future, whereas in the developing countries the needs for new infrastructure are still not saturated, the consequence of a poor historical backgrounds. The infrastructure projects realization using the public-private partnership model is essentially funded on the shortcomings of purely public and purely private scheme of construction, financing and managing infrastructure objects and provision of infrastructure services. For example, Miller Š1Ë claims that neither fully public nor fully private financing, executing ot managing infrastructure projects are sustainable in the long term. Milosavljević and Benković Š2Ë structured the potential weaknesses of purely public and purely private investments into infrastructure into two broad groups. One group consists of the weaknesses and potential threats conditioned by the role of the state in creating and managing infrastructure projects. These weaknesses refer to numerous inefficiences such as slow and inefficient decision making, inefficient organizational and institutional frame, as well as lack of competition, and hence market efficiency Š3Ë. On the other hand, the imperfections of private initiative in the execution of infrastructure projects is reflected in the potential assymetry in the service provision and hence the need for stricter control by the state agencies. Furthermore, certain authors advocate the approach of total/large-scale privatization as an ultimate approach to public goods supply. Although fully private schemes are still used, at least in theory, Martimoor and Pouyet Š4Ë maintain that a non-conformity in reliance upon privatization is affected by the weaknesses of the public provision of infrastructure goods, rather than by the real adequacy of the private sector. Although the public-private partnership is to some extent similar to privatization, many authors deem that these terms cannot be equalled, such as Minow, for example, tried Š5Ë. In the privatization process, according to Grimsey and Lewis Š6Ë, the state loses control over the subject of privatization entirely, whereas in public-private partnership the control and ownership are shared between the public and the private partners on an equal basis. In accordance with the above mentioned, to overcome the present problems it is important that a formula for an adequate role and relationship between the public and the private agents be found in infrastructure financing, execution and management. Hodge and Greve Š7Ë claim that almost all definitions start from the assumption that the public-private partnership model is good, as it draws on the benefits of both the private and public sectors. Besides, a successful implementation of public-private partnership requires an effective partnership between the public and the private sectors, which, according to HM Treasury Š8Ë means ensuring a sufficient capacity of the public sector to act as an effective client, an adequate capacity of the private sector to meet the consumers needs, as well as a mutual trust of both parties to build the partnership on a sustainable basis. A positive attitude towards public-private partnerships stems from the numerous characteristis of the partnership itself. The primary among them is, doubtlessly, a higher value created in comparison with other methods of infrastructure project realization. This testing is much better known as the value for money test. This actually means that under the same conditions, the private player would provide infrastructure services or build infrastructure facilities at lower costs compared to the public sector in this job. Another elementary feature refers to the potentials of risk transfer, where the control activities related to expenditures, works dynamics, etc. can be transferred to the private partner. This calls for a lot of caution, since risk transfer should follow the principle that the risk should be allocated to the party best suited to manage it. In order that these multiple interrelated conditions be fulfilled it is necessary that the relations of all the interest and interested parties in the public-private partnership should be founded. The relationship between public institutions and organizations and the project company is especially important and it is the central theme of this work. Our aim in the paper is to explain the public-private partnership concept itself. We will then proceed to define the general system of relations in the generic model. Finally, possible hybrid models will be presented, however the list, due to their continual development, is not final. 2. Concept and essential features of public-private partnership Numerous varieties of new public-private partnership models have been developed so far in order that the public-private partnership model should be adapted to specific situations and sectors. Thus the synergy created within the partnership can spread to numerous specific niches of infrastructure development. In the most highly developed countries the public-private partnerships are used to some extent in the realization of infrastructure projects. In the western European countries, Great Britain has a leading position in the private financing initiative realization (the British equivalent for the public and private sector partnership projects), although other countries too experiment with a wide range of public-private partnerships. In the developing countries, according to Akintoye et al. Š9Ë study, there is a high regional concentration of such contracts, primary in Latin America, followed by such contracts in Southeastern Asia. Types of contracts vary greatly and differ from country to country in accordance with the sensibility of national economies. Regardless of the range, it is difficult to find a unique definition of the partnership between the public and the private sectors. Broad academic definitions describe publicprivate partnership as a contract by which the private sector builds infrastructure facilities and provides infrastructure services which has traditionally been the role of the state Š10Ë. More specific definitions include essential features and define public-private partnership as partnership between the public and the private sectors which cooperate for the purpose of achieving mutual or compatible goals (such as provision of infrastructure services) together with the risk and liability distribution and allocation to the public and the private sectors Š3Ë. The lack of a uniform definition of international institutions and organizations makes the problem complex, such as is the one between academics and practitioners in the field of project financing. For example, the World Bank has no uniform definition and treats the publicprivate partnership concept as rather a broad one. They stress the concept of partnership style in the provision of infrastructure services as an antipode to the arms length style which means the action or behaviour of the parties in the job as independent from each other, both financially and otherwise. Liability is understood in a rather broad sense and ranges from individual responsibility for each assigned job segment to shared responsibility for individual job elements, or the entire job. In addition to these elements, risk taking, rewards for the job done and others are defined Š11Ë. On the other hand, according to the European Commission Š12Ë, the public-private partnership can be defined as the contract between two or more parties that agree to cooperate for the purpose of achieving separate or/and compatible goals, with delegation of authority and liability, joint investment into resources, shared debts and risk taking and ideal mutual benefit. In addition to the Guidelines for successful public partnerships that follow this definition, the European Commission has previously adopted numerous directives related to the field of collaboration of the public and private sectors which are regarded as the so-called classic guidelines (such as: Supplies Directive 93/36/EEC, Services Directive 92/50/EEC, Utilities Directive 93/38/EEC). The final analysis of the publicprivate partnership sector was issued in 2004, in the Green book on the public-private partnership and local legislature on public contracts and concessions, thereby clearly classifying this type of partnership. Thus the partnerships are classed into the public-private partnerships which are exclusively contractual in type and the institutional public-private partnerships. The guidelines provided by the European Union are not binding in character. They are based on a dual goal: the public-private partnership should be unified to such an extent that all the member-countries should be in a position to benefit from this model; on the other hand, no economic entity can be privileged in comparison with the others. In the domestic legislative and economic environment, public-private partnerships are exclusively under the home country jurisdiction, hence the European Union guidelines are not of critical importance yet. In addition to the general legal norms, public-private partnerships are specially linked to the Concession Law, the Law on Public Acquisitions, as well as other legal and sublegal acts of the Republic of Serbia. Our aim in this paper, however, is not to highlight the legal aspects of public-private partnership. The relations taken into consideration here are not legal and technical categories in the sense of parties in a business arrangement, although they appear to be such. The focus is rather on the research into the business relations in a managerial sense, and formulating a leeway the players in public-private partnership should have. 3. Business relations and contract relationships in public-private partnership In public-private partnership, contracts are indispensable in regulating the rights and liabilities of all the contracting parties during all the phases of infrastructure projects realization. In accordance with the specific features of each partnership, the contracts themselves are concluded for each public-private partnership project individually. Contracts in the public-private partnership model serve to specify all the conditions under which the private party undertakes the liability to build, maintain, provide services of stipulated quantity and quality, transfer the infrastructure facilities upon the expiry of the exploitation period and other important elements. Special clauses are introduced to improve the functionality of the public-private partnership project and consequently manage the project in a more adequate manner. In drafting a contract attention should be paid to the preconditions, the characteristics of the public-private partnership model itself, as well as to the principles according to which the contracts are granted. The preconditions refer to creating an adequate legal and business environment for the development of the pub lic-private partnership project Š13Ë. This, however, does not mean that it is a sufficient condition for the public-private partnership project implementation. The contract itself has to specify the minimum standards in order that the project should be implemented, but also in order that the risk should be adequately allocated among the business partners. Such contract is quite similar to the contracts on public acquisitions, however, it should be noted that here we deal with different contracts, primarily due to their degree of complexity. The contracts on public acquisitions are based on the selection of the best offer on the basis of the set of a priori defined criteria and most often the search for the best offer is confined to simply collecting offers. The situation t is different with the contracts on the partnership between the public and the private sectors in that the negotiaations should result into the best long-term offer. This means that the private partner must command the required expertise and the real capacity to manage the project effectively. The private partner has to provide a comprehensive estimate of the investment programme which is in most cases carried out in the time span of several years. Then the transfer of liabilities is effected per contract from the public to the private partner, whereby special attention is paid to the risk allocation in accordance with the characteristics of the infrastructure goods itself. All the project benefits are directly correlated with the the project performances themselves, therebye avoiding the situation in which the private partner should generate any financial or tangible or legal benefits he does not merit. As a secondary effect, the project exploitation period has to be stipulated, namely the moment the infrastructure facility will be transferred to the public sector. At the moment of transfer, the infrastructure facility has to be in the condition specified at the beginning of the contract, which is by no means easy if we know that the exploitation period may sometimes span to even 30 years. Upon defining the basic business relations, the project company defines other contractual relations with third parties: contractors, suppliers of various raw materials and power resources, infrastructure services or products purchasers, economic entities engaged in infrastructure facilities maintenance, and various sponsors, investors and creditors. The list of interest and interested parties is not exhausted here, however, in a generic sense, these relations can be represented by the model in Figure 1. Figure 1. Generic model of business relations in public-private partnership Š14Ë 4. Hybrid business relations varieties in public-private partnership There is no uniform nor universally acceptable decision-making model on which type of public-private partnership model will serve the project best. The abovementioned depends on the features of the project itself, as well as on the perception of the population of the need for partnership. The traditional public-private partnership models are sometimes characterised by rigid assumptions, postponement in negotiations and consequentially increased costs due to the impacts of numerous environmental factors. Any delay in negotiations, the cost progression and the rigidity of the conditions in standardized public-private partnership contracts result into a suboptimal resource allocation. The hybrid public-private partnership models are developed for the purpose of using numerous opportunities and strengths, as well as overcoming various threats and weaknesses the public-private partnership may be faced with. These models are applicable in specific situations and sectors where a higher quality of product can be achieved. Specific situational or sector characteristics are the result of risk and uncertainty. They in turn may result from defects (flows in the infrastructure projects execution that could not be predicted in the initial phases), policy changes (adopting changes in required services), demand risk (the result of, e.g., introducing a customers choice), changes in demand for public goods, as well as from rapid changes in technologies. The models capable of improving the flexibility and shortening the contractual period have the capacity to increase the probability of achieving the goals of the public sector policy in infrastructure development, for the projects that are highly exposed to the above mentioned risks and uncertainties Š15Ë. Hybrid models differ by the level of complexity of the very relations between the public and the private partners. The most complex forms are incorporations and joint ventures. Incorporation means that not all but only certain project operations are transferred to the private partner. Most frequently mentioned elements here are project design, development and financing. This collaboration may be extended to other business operations throughout the project life cycle. Joint venture is a contract binding the public and the private sectors to join their assets, finance and expertise, under shared management, to carry out a programme or a project, sharing both profits and risks. In this type of partnership the private partner retains control. According to Merna and Njiru Š16Ë, such a type of projects requires the socalled value for money test and has to meet the following criteria: (a) the private partner is selected through competitive bidding, (b) the control over joint investment is the liability of the private agent, (c) state contributions and constraints in the project are clearly defined, and (d) there is a clear agreement on the allocation of risks and the distribution of rewards. When many projects that are smaller in scope are integrated and entrusted to one partner so that the costs be reduced and the time of the project realization be short ened, we talk of integrating or consolidating smaller jobs. Basically, this helps achieve the synergy in the realization of infrastructure projects. Incorporation includes the entrusting of the functions of design, construction, financing, realization and maintenance of facilities to the private partner, most frequently via forming a SPV or a virtual corporation created for a specific project Š17Ë. With such a model of infrastructure building, the public sector retains its minimalistic requirements: it only needs to form a consortium out of the private sector that will be in charge of the design of qualitative infrastructure attributes, construction of these facilities and, finally, of managing them in the best possible manner Š4Ë. The aim of incorporation is to avoid the rivalries and acrymony that sometimes characterise the conventional models of project realization and allow for all the parties to cooperate and collaborate for the good of the project. According to the Deloitte study Š15Ë, this model is especially applicable in the defence sector, where projects are large and inseparable from one another and where well defined outputs are often not allowed to be publicised. There are some restraints, though. For example, Iimi Š18Ë states that in case of water supply it is not profitable to create competition for the annual deliveries of less than 400 million m3. Public-private partnership can be achieved via the integrator function. The competent public entity appoints the partner from the private sector, the integrator, to manage the project throughout its life cycle. The integrator has a role of a mediator since it regulates the necessary functions and is paid a defined commission for the job. In case of possible delays in constructions, of excessive costs, poor quality, etc., the state does not sanction the contractors, but the integrator. The integrator is most often not allowed to perform certain business operations in the infrastructure project execution directly, in order to prevent a possible conflict of interests, or is allowed to participate only in the initial phases (e.g., construction works); later the integrator is assigned a new mediation role. The market forces are believed to give value for money through competitive biddings for a concession contract or a contract on public procurements. This is for the reason that bidders are ready to accept the competitive tension and deliver the infrastructure facility or service in a more economical manner than in case there is no competition whatsoever Š7Ë. Competitive partnership can be implemented when the specific nature of the project allows for the ex ante allocation of resources. In such a case the competent regulatory agency may select a number of private partners to compete for new resources. The partner for any subsequent project segment will si multaneously be selected, in that the contract will be signed with the party that performed the previous tasks in the best manner. On the other hand, incremental partnership means that certain project business elements can be cancelled or completely stopped if they are estimated as non-productive. The public sector may issue the permits for the project to be continued incrementally and retain the right to form partnerships with other entities if the previously selected alternative proves inadequate. Thus the public partner takes less risk, as it ensures a continual adjustment and the socalled all-inclusive liability is eliminated. Figure 2 presents the prospects of the hybrid public-private partnership models development. It is important to note that they are mutually exclusive, however, in certain specific circumstances, they may be complementary. Then they can be used simultaneously to improve the efficiency and effectiveness of contracting. Figure 2. Hybrid public-private partnership models The hybridization options listed in the above-presented model do not close the list. The risks and uncertainties that profile the infrastructure development are numerous. Each infrastructure facility and service is characterised by a new set of risks, therefore, the more detailed the list, the larger number of hybrid models will emerge. 5. Conclusive discussions The development of infrastructure is one of the key activities of any national economy. The traditional approaches to financing based on direct project financing become inadequate; hence it is necessary that in the provision of infrastructure services a model of public-private partnership be implemented. The forms of public-private partnership arrangements are numerous. A potentially useful concept of infrastructure development, public-private partnership can be adjusted to individual needs and characteristics of every single project and/or project partner. Here, it is important to note that the basic principles, approaches and techniques implemented in public-private partnership may be enriched by the introduction of specific clauses in contracts. Thus a basic model can take in new contents to grow into an entirely new hybrid public-private partnership model. The extent to which the concept itself of public-private partnership should be moderated depends on the set of specific circumstances in which a given infrastructure project is executed. It is important to note that the situational approach is the only valid approach in the selection of an adequate public-private partnership model. The situational approach means a selection of an optimal solution on an ad hoc basis. The key criteria characterising the moderation of the concept are numerous. It is especially important to note that a long-term cooperation, a real risk allocation and the liability transfer for certain operations segments should result into a higher quality of infrastructure facilities construction and infrastructure services provision, to the benefit of all the participants. REFERENCES Š1Ë Miller, J.B. Applying Multiple project Procurement Methods to a Portfolio of Infrastructure Projects, Procurement Systems: A Guide to Best Practice in Construction, E&N Spon, 1999. Š2Ë Milosavljevic, M. and Benkovic, S. Modern Aspects of Public Private Partnership, Perspectives of Innovations, Economics and Business, Vol. 3, pp 2528, 2009. Š3Ë Kwak, Y. H. Chih Y. Y. and Ibbs C. W. Towards a Comprehensive Understanding of Public Private Partnerships for Infrastructure Development, California Management Review, Vol.51, No.2, 2009 Š4Ë Martimor, D. and Pouyet, J. To Build or Not to Build: Normative and Positive Theories of Publicprivate Partnership, International Journal of Industrial Organization, Volume 26, Issue 2, pp 393411, 2008. Š5Ë Minow, M. Public and private partnerships: Accounting for the new religion. Harvard Law Review. Vol. 116, pp 1229-1237, 2003. Š6Ë Grimsey, D. and Lewis, M. Are Public Private Partnership Value for Money?: Evaluating alternative approaches and comparing academic and practitioner views, Accounting Forum, Vol. 29, Issue 4, pp 345-378, 2005. Š7Ë Hodge, G. and Greve, C. The Challenge of Public Private Partnerships: Learning from International Exerience, Edward Elgar Publishing Ltd, 2005. Š8Ë HM Treasury PFI: Meeting the Investment Challenge, (Accessible online at: www.hm-treasury.gov.uk/media/648B2/PFI_604.pdf), 2003. Š9Ë Akintoye, A. Beck, M. and Hardcastle, C. Public Private Partnerships: Managing Risks and Opportunities, Blackwell Publishing Company, 2003. Š10Ë Hemming, R. Public-Private Partnerships, Government Guarantees, and Fiscal Risk, International Monetary Fund, Washington, DC, 2006. Š11Ë The World Bank, World Bank Group Private Sector Development Strategy Implementation Progress Report, Washington DC, 2003. Š12Ë European Commission, Guidelines for Successful Public Private Partnership, 2003. Š13Ë Milosavljević, M. i Benković, S. Implementacija mehanizma koncesije za razvoj infrastrukture, Management časopis za teoriju i praksu menadžmenta, Vol. 55, str. 35-42, 2010. Š14Ë Zulhabri I, Torrance J, Efficient Risk Allocation in Project Finance, Planning & Surveying, Universiti Teknologi MARA, Faculty of Architecture, Selangor, Malaysia, pp 19, 2005. Š15Ë Deloitte, Closing Americas Infrastructure Gap: The Role of Public Private Partnership, A Deloitte Research Study, www.deloitte.com, 2009. Š16Ë Merna, T. and Njiru, C. Financing Infrastructure Projects, Thomas Telford Publishing, London, 2002. Š17Ë Grimsey, D. and Lewis, M. Public Private in Partnerships: The Worldwide Revolution Infrastructure Provision and Project Finance, Edward Elgar Publishing Ltd, 2004. Š18Ë Iimi, A. (Un)Bundling Public-Private Partnership Contracts in the Water Sector: Competition in Auction and Economy of Scale in Operation, The World Bank Policy Research Paper 4459, Finance, Economics and Urban Development Department, pp 18, 2008. Modeling the Fraud-like Investment Founds by Petri Nets UDC: 336.1.07 ; 658:004.42.045 ; 519.179.2 Daniel Ciuiu1, 2 1Technical University of Civil Engineering, Bucharest, Romania 2Romanian Institute for Economic Forecasting, Bucharest, Romania e-mail: dciuiu¿yahoo.com XII International Symposium SymOrg 2010, 09 - 12 June 2010, Zlatibor, Serbia In this paper we model the fraud-like investment founds using place-transition Petri nets. We will also classify the business using regression line in order to find the possible fraud-like investment founds. In these regression lines we compute analytical the mark of a place in function of some other elements of the Petri net, and next we express this value in function of the same elements using regression. From the identity of the coefficients we find a ratio between two weights of arcs. We make also a    program where the marks and transitions are implemented as classes for Petri nets, and, using the heritage mechanism we extend the Petri net to Petri net with priorities. ++C ( )FT,S, 1. Introduction Definition 1 (Š6Ë). It is called Petri net the triplet N = 1) S and T are disjoint sets. ×∪×⊂ STTSF is a binary relation. , where: ( )F,T,SN = Definition 2 (Š6Ë). Let     be a Petri net. Φ≠∪ TS 1) N is nonempty if    . ∪= TSX 2) N is finite if is finite    . Φ=∩ ∪=∈ x x TSXx 3) is pure if for any      we have , š ćF ćF ) ( ) ∈ ∈ y,xXy x where         and        . = Xy,x ∈ x y and 4) is simple if for any    such that š x,yXy ∈= x ∈= ( x =   x = y we have  . Xx ∈ Φ= The element   is isolated if     . x ∪ x  y Definition 3 (Š6Ë). It is called place-transition Petri net the quintuple (S,T,F,K,W), where: 1) (S,T,F) is a Petri net. 2) is the capacity function of the Petri š ć∞∪→ ∗N S:K net. F:W ∗→ N is the weight function of the Petri net. 3) In this case S is called the places set, and T is called the transitions set. If the functions K and W are constant 1, S is the conditions set, T is the events set, and the obtained Petri net is a condition-event Petri net. t − ( )W,K,F,T,S=Σ Let        a place-transition Petri net and Tt ∈ one of its transitions. We denote by   , and − ∆t the functions       and      such t ( ) )t,sWs ( )s = that      ,      and       . −t +t , + ∗ ∗→ → N ∆ F: t, F:t Z ( ) ( ( ) )s,tWs + + − =∆ = t t s t t )W,K,F,T,S=Σ Definition 4 (Š6Ë). Let        be a place-transition Petri net. It is called mark of the net a function ( ) ( )sKsM ≤ S:M . such that for any  we have ∗→ N Ss∈ ( ( − Graphically the places of a place-transition Petri net are represented by circles, the transitions by rectangles and the arcs (the elements of ) by oriented lines. The capacities different of are written between parentheses after the places labels, and the weights different of ∝ are written on the corresponding lines. The marks are represented by points in the places where they are positive. If a mark is large we represent only a point and its value. Definition 5 (Š6Ë). Let (S,T,F,K,W) be a place-transition Petri net. Tt ∈ 1) A transition ( ) )t,sWsM ≥ ) ( is enabled to fire at the mark M t (or it has concession at the mark M) if for any ( we have (the resources of the precedents are large enough), and for any we have ( ) ( )sKs,tWsM + (if we add the resources produced by t to its successors we do not exceed the capacity). ∈ ∈ ≤ s s t 2) The mark M' is produced by firing of the transition t at the mark M if for any ( ( ) )t,sWsMsM ( ) ′ = − ( ( ) )s,tWsMsM ( ) ′ = + ( ) ( )sMsM = ′ have . ∈ s t we have s ∈ t and for any , and for the other we have Ss∈ we ′ Σ [ ΣtM [ MtM [ ( ) Σ tMTtM,T The first part of the above definition is the enabling rule and the second part is the firing rule. We denote by the fact that the transition t is enabled to fire at the mark M and by     he fact that the mark M' is produced by firing of the transition t at the mark M. We denote also by          . If there is no confusion about the Petri net Σ can be omitted. Definition 6(Š6Ë). Let Σ be a place-transition Petri net and M a mark of it. 1) ∗∈ Tw exist the marks M0 = M, M1,..., Mn such that is a sequence of transitions from M if there ćΣ ∈= š [ i and      . We denote this by MtM i Σ + 1i t... − 1n = tw t [ ΣwM . 2) The mark M' is accessible from M if there exists a sequence of transitions w as above such that nMM =′ [ MwM ′ . We denote this by     . Σ In the above definition we accept also the empty se[ M quence λ: we have    and    . M Σλ [ ΣλM Definition 7(Š6Ë). It is called marked place-transition Petri net or place-transition Petri system the pair )0M,Σ=γ M0 an initial mark of Σ. where Σ is a place-transition Petri net and ( Definition 8(Š6Ë). A marked place-transition Petri net [ ( ( ) ∈∀ MM sMSs is without contact if ( ) ( ))sKs,tWsM ( ) ( + ≤ . t,sW ] )( ∈∀ )( ∈∀ Tt ) ( ⇒ ) ≥ Therefore if a transition is not enabled to fire at a given mark this happens only because of the lack of resources, not because of overtake a capacity. If the transitions are produced sequentially we have a sequential evolution of the place-transition Petri net. If some transitions are produced in the same time we have a parallel evolution of the net. Definition 9(Š6Ë). Let Σ be a place-transition Petri net TA ⊆ without contact, M a mark of it and   . 1) A is a set of transitions parallel enabled to fire at Mt the mark M (in Σ) if     . ≤ ∑ − ∈ At 2) The mark M' is produced by parallel firing of the set of transitions A at the mark M (in Σ) if MM ∆∑+ t . =′ ∈ At Remark 1. The above definition is given only for Petri nets without contact, but this definition can be extendM ed by the condition       (condition to not overtake the capacities). ∑+ ∈ At K ≤ + t )W,K,F,T,S=Σ Definition 10(Š6Ë). Let        a place-transićn š T = s tion Petri net with      and . The incidence matrix of Σ is the m × n matrix IΣ such that       for any ćm m,1i = S = ( )i j s ( ,..., n,1j = ( ) j,i and ∆= ,..., š t s Σ I t t . Theorem 1(Š6Ë). Let Σ be a place-transition Petri net and two marks of it, M1 and M2 represented as m vectors. The mark M2 is accessible from M1 if and only if f there exists a n vector f such that       . + IMM = ⋅ Σ From the proof of the above theorem we know (see Š6Ë) that fi is the number of appearances of ti in w such that MwM [ . Σ )W,K,F,T,S=Σ ( Definition 11(Š6Ë). Let        be a placetransition Petri net with the incidence matrix IΣ . 1) The vector with integer components J is an S in 2) The support of the S invariant J is the set JT ⋅ Σ I = variant if     . ć0 . š s JS ∈ = ≠ P J i i 3) The S invariant J is nonnegative if   . 4) The S invariant J > 0 is minimal if there exists not J ≥ J an S invariant J' such that    . 5) The place-transition Petri net generated by the S << 'J ( )'W,'K,'F,'T,'S ' =Σ where invariant J is the Petri net S =′ JP a)    . ∪= 'T 'S'S b)      . ( ( ) )'S'T ×∪×∩= F'F 'T'S c)           . 'SK'K = d)    . 'FW'W = e)     . ) ( ⋅ T 'MgMg From the existence of positive S invariants we can conclude that we can give weights to the places by a vector g such that for any marks M and M accessible from M we have       (see Š6Ë). Therefore for any initial mark M0 (which represents the initial resources of the modeled system) the weighted resources of the part of the system represented by Pj remains constant. If the invariant is minimal then the weights are minimal for the involved places. = T ⋅ The set of S invariants is a Z module i.e. it has the properties of a vector space, but instead of a field we have only a ring, namely Z. )W,K,F,T,S=Σ ( D efinition 12(Š6Ë). Let        be a placetransition Petri net with the incidence matrix IΣ. 1) The vector with n integer components J is a T in 2) The support of the T invariant J is the set I J =⋅Σ variant if    . ć0 JT ∈ ≠ = š t i P J i . 3) The T invariant J is nonnegative if   . 4) The T invariant J > 0 is minimal if there exists no J ≥ J T invariant J' such that    . 'J << 5) The place-transition Petri net generated by the where T invariant J is the Petri net ( )'W,'K,'F,'T,'S ' =Σ JP'T = a)    . ∪ 'T'T 'S b)      . ( ( )'S'T ) F'F 'T'S c)           . 'SK'K = d)     . 'FW'W = e)     . = ×∪×∩= ) ( Suppose there exists a positive T invariant J and for a given mark M there exists a sequence of transitions from M that contains the transitions of PJ with the corresponding multiplicities of J, and only these transi tions. In this case the mark M can be reproduced after a finite number of transitions (we apply theorem 1). The minimality of a T invariant means that the mark is reproduced after a minimum number of appearances of the involved transitions. If there exists no sequence of transitions from M as above for a minimal T invariant M can not be reproduced after a finite number of transitions. The set of T invariants is also a Z module. Example 1(Š6Ë). Consider the following producer-consumer model: Picture 1: Petri net for a producer-consumer model In the above Petri net the interpretation of the elements is as follows. s1 is a signal that the producer is ready to produce. s2 is a signal that the producer is ready to send the products. s3 is a buffer (capacity is ). s4 is a signal that the consumer is ready to receive the products. s5 is a signal that the consumer is ready to consume. t1 is the production activity. t2 is the sending to buffer activity. t3 is the receiving from buffer activity. t4 is the consumption activity. )T M = ( 0,1,2,0,1 The transitions t1 and t3 are parallel enabled to fire at the initial mark        . We notice that after the fire of t1 t2 is enabled to fire only after we reduce the mark of s3 (the buffer) by firing t3 (receiving from buffer). Therefore the producer can not produce as many items he wants while the consumer does not empty the buffer by consumption. After firing t3 this transition is no more enabled to fire: it must be fired first t4: effective consumption. I =Σ − The incidence matrix is       ( ⋅ x,x,0,x,x2 The S invariants are           with ( )T0,0,0,1,2 the minimal S invariants      and . ( )T1,1,0,1,2 ( )T1,1,0,0,0 g = We notice that we can take ,      −  )T − − = J . which can be considered as an equilibrium between offer and demand. J = ( x,x,x,x ( )T2,2,1,1 The T invariants are        with the minimal T invariant    . Therefore if we fire two times the sequence t3 , t4 we empty the buffer, and after we fire t1 and t2 we reproduce the initial mark. )T  We present now some extensions of the Petri nets. , ( Definition 13(Š6Ë). A Petri net with priorities is a couple )ρΣ=γ where Σ is a Petri net and ρ is a partial order relation on the transitions set T. The signification of the order relation ρ is that if t1ρt2 the transition t2 has higher priority in firing than t1. A transition t is p enabled to fire at the mark M (in ) L [ ΣtM if    and for any t' such that   we have not tρt'. We denote this by    . p, [ Σ'tM [ tM γ A mark M' is p produced by firing of the transition t at the mark M if    and    . We denote this [ 'MtM p,γ by     . [ 'MtM Σ [ tM γ p, ( )Q,Σ=γ Definition 14(Š6Ë). A Petri net controlled by queues is a couple    where Σ is a Petri net and Q is the set of queues with transitions that appear only once in the queue. ( )Q,Σ=γ Qq ∈ Let     a Petri net controlled by queues, M a mark of Σ and   a queue with above properties. The transition t is Q enabled to fire at (M, q), and we [ tM ∑ , if    and t is the first transidenote it by tion enabled to fire in q. [ ΣtM Q, iQ,Σ ( )'q,'M , if         , )'q,'M ( and q' is obtained from q as follows: Q'q ∈ If M' is a mark of Σ and   is a queue with above ( )q,M ′ ′ is Q produced by firing properties we say that of the transition t at (M,q), and we denote it by )[ )[ ( ( tq,M tq,M [ 'MtM Σ (a) We remove t from q (b) We add to the end of q all the transitions enabled to fire at the mark M' that are not already in the queue (in an arbitrary order) iQ,Σ (c) With the transitions from the obtained queue by (a) and (b) that are not enabled to fire at the mark M' 3,1i = we do the following step depending on   : (c1) remain in the queue until a possible removing (when it becomes possible at the step (a)) (c2) they are removed from the queue (c3) they are removed from the queue from the beginning to the first transition enabled to fire at the mark M'. TA ⊆ Definition 15(Š6Ë). Let Σ be a Petri net, M a mark of it and   . is a maximal set of transitions parallel enabled to fire at M (in Σ) if it is a set of transitions parallel enabled to fire at M and for any     the set A ∪ has no more this property. −∈ ATt šćt Definition 16(Š6Ë). Let Σ be a Petri net, M a mark of it, TA ⊆ 1) t is max-enabled to fire at (M,A) in Σ, and we de Tt ∈ and   . )[ ( tA,M note it by      , if: [ ΣtM a)    . At ∈ b)    . max ∑ , 2) (M', B) is max-produced by firing of the transition t max at (M, A) in Σ, and we denote it by (M', A), if: )[tA,M ( ,∑ )[ ( tA,M a)       . ∑ [ max , 'MtM Σ b)     . šć šć − − tA tAif = B šć Φ= − tAifC c)    Φ≠ , where is any arbitrary set of transitions parallel enabled to fire at M'. = ( Inp,QA , Definition 17(Š6Ë). A nondeterministic finite automaton is a quintuple          , where , Q Inp and Out are nonempty finite sets representing the set of the states, the set of the entries and respectively the set of exits,           is the transition function and    is the initial state. )0q, δ Q: q0 ∈ →× ( Out Inp Q )Q ,Out P × δ = ( )A,Σ=γ ( Inp,QA , Definition 18(Š6Ë). A Petri net controlled by finite automata, shortened APTN, is a couple     where Σ )0q, δ is a place-transition Petri net and is a nondeterministic finite automaton such that: T 1)     ,    ; 2) For any   and       we have ( )U,q ) δ∈′ we have   (consistency in decision). ∈ T U P (unlocking by A); ( ) š ćΦ− ( )T Qq ∈ ) Φ≠ Qq ∈ Ut ∈ 3) For any   ,       and Inp P= ( δ U,q ( ) š ćΦ− Out = ∈ T U P ( q,t ,Out )A,Σ=γ ( Definition 19(Š6Ë). Let     be an , APTN a state of A, M a mark and t a transition of Σ. 1) t is a enabled to fire at (M,q) (in γ), and we de)[ ( tq,M note this by     , if there exist a state q' of γ a, ( )MT,q ( ) ) ( δ∈ 'q,t A such that        . ( )q,M ′ ′ at (M,q) (in γ), and we denote this by )[ ) ( )MT,q ( ) ( ( )'q,'M δ∈ tq,M a,γ ∆+ tM'M . is a produced by firing of the transition t , if        and ( 'q,t 2) = 2. The model Consider the following place-transition Petri net system: Picture 2: Petri net for a fraud-like investment found In the above Petri net the interpretation of the elements is as follows. s1 is the fictive capital. s2 is the sum that will be invested in a fictive invest ment (capacity is a). s3 is a signal to possible investors (capacity is 1). s4 is the expected benefit for the organizer. s5 is the first deposit of the organizer (the place where the money from investors are deposited). s6 is the place from where the organizer simulates that the game is not over. t7 is the final account of the organizer. t1 is the extracting operation from the fictive capital. t2 is the fictive investment. t3 is the effective investment. t4 is the copying of the final benefit. t5 is the collapse of the found. ≤ < ps pe Remark 2. In the above model we have b > a (in fact b >> a), a đ pe and       . ps is the target benefit of the organizer, pe is the real benefit of the organizer, a is the average rate of subscripted money from population and   is the false benefit rate of the game. b − a pe + a We can add to the above Petri net the places s8 and s9, and the transitions t6 and t7 analogous to the places s6 and s7, and the transitions t4 and t5: the sequence s7, t6, s8, t7, s9 is identical to the sequence s5, t4, s6, t5, s7 . Analogously we can add to the Petri net any number of such sequences containing two places and two transitions. The above place-transition Petri net is nonempty, finite, pure and simple, and it has no isolated elements. The initial mark is M = ( 0,0,0,ps,0,0,cf )T . (1) The incidence matrix is − pe pe b − − a a − a a b − a            =Σ I b − a a            .          (2) J IT =⋅Σ The S invariants obtained by solving the linear system     (the transposed relation from definition 11) are of the form    b2,Jba,J,J a J,J,J,J   J1  T . ( ) + − − =        J (3) We notice that the S invariant J is nonnegative only if J1 = , obtaining in this case the minimal S invariant ( )T1,1,1,1,0,0,0 J = . An interesting thing is that the Petri net generated by this minimal S invariant is the chain →→→→→ of places and transitions t → : the investment found consists by tacking mon5 ey from the investors (place s4) and deposit to the places5, and then moving to the place s6 and finally to the place s7. s s s s  t t The only T invariant is with all the components equal to 0 (PJ = F for any T invariant J). This means that no mark (including the initial one) can be reproduced after a finite number of steps. ⋅  a = − − − = = = − b a M M pe M1 ,a,a ( cf ( cf ( cf +− +⋅− ,0,pe,pe ⋅+− 2a ps,0,a,pe 0,0,0,ps,1,0b )T0,0,a,a ( cf )T0,0,0,ps,0 )T Firstly the only transition enabled to fire is t1 and it produces the mark            . Next the only transition enabled to fire is t2 and it produces the mark             . Now there exist two enabled to fire transitions which are also parallel enabled to fire: t1 and t3. Even the Petri net evolution is sequential using first the transition t1 or the transition ,ba2 M t3, even it is parallel the final mark is ps,0,a . This above sequence (t2 and next the subsequence t1 and t3) is applied until we obtain the )T0 mark . In this moment there are two transitions parallel enabled to fire: t2 and t4. If we do not apply at the final 0,0,pe step t1 the obtained mark is ps,0 , and t2 is replace by t1 between the above parallel enabled to fire transitions. The parallelism holds on until we apply the transition t2 and next the transition t1, or we apply the transition t4 and we repeat the transition t5 until the mark of s6 is 0. When we apply t2 the transition t3 is not enabled to fire because we have     . After we apply t1 the only transition enabled to fire remains t4 or t5 (if t4 was applied). Next we apply t5 until the mark of s6 is 0. If the mark of s6 is 0 the only transition enabled to fire is t2, and next t1. In all the above cases we obtain the final mark M and none of the above transitions is now enabled to fire: the game failed. )pe,0,0,pe ++⋅− ps,1,a,pe ,0,pe,pe −⋅ ab3 a ba2 ( cf ( cf )T0 ⋅+ pe ps pe M < − b a − = − = − a ⋅ ⋅ š ć1tA = Because at any time all the enabled to fire transitions are parallel enabled to fire we can consider the model of Petri net under maximum strategy: when the mark is the initial one    . For this reason we can consider also the model of Petri net controlled by finite automata: we take ć1 0 q,qQ = š ( ( ) = U,q q,t ć ∈ ifUt (4) (5) š U t, ∉ ) δ ,  t , , ( δ Uq ( U,q δ ) ) = = ć š ( ∈ ifUtqt , š ćUt ( ∈ q,t ) ) . ∈ t UtorU ∈ , and (5) (5) š ć0qQ = Of course, we can consider above     and the corresponding δ, but we have used two states for the automaton to point out the stages of the investment found: the collection of money from the investors (transitions t1, t2 and t3) and the simulation of the continuity of the found (transitions t4 and t5). The above marks M4 and M6 are obtained by solving the equations ( MM fc 0,0,pe,pe ps,0,a,cf and ′ f ) T −′ = − = − I ⋅ Σ (6) − = ( − cf ps,1,a,cf MM (6) with the variables cf′, f′1, f′2, f′3, f′4 and , respectively cf′′, f′′1, f′′2, f′′3, f′′4 and f′′5. pe,0,0,pe f Σ I − ) T = ⋅ If we denote the final mark of s1 by Y and the total invested sum by X we obtain (7) += cY    c , b3 −⋅ a = cf  ⋅ X1  ba2 +⋅− where       and if we add elements as in remark 2 the coefficient 3 of  in (7) increases by 1 for each set of two places and two transitions. b a If we classify investment founds using the regression line 7 (see Š4Ë) the fraud-like ones will be classify in classes with large coefficients of the explanatory variable . For only one class these points can be also outliers. ++C 3. Applications We define in the    header petri.h two classes: tranz and marc. Class tranz has the transitions as objects, and the integer properties nrloc (number of places of the Petri net), indice (the index of the transition), pred (the integer vector of weights from its precedents) and succ (the integer vector of weights to its successors). The methods are the constructor of the class and citire. In the constructor all the weights are initialized with , and citire is a void method with two integer arguments (the number of places and the index of the transition) that reads the real weights. Class marc has the marks as objects and the integers properties nrloc (the same as for tranz), nrtrp (number of transitions enabled to fire), val (the integer vector representing the current mark of the Petri net), cap (the integer vector representing the capaci ties of the nodes) and ltrp (the integer vector representing the list of transitions enabled to fire). The methods are analogous to class tranz: in constructor the capacities are initialized with -1 (with the signification of infinite capacity) and the marks with 0. The method init, having an integer argument (the number of places) is analogous to the method citire of class tranz: we use it to read the capacities and the initial mark. This is the reason that we have called it init instead of citire. We have defined also two operators with an argument transition and returning the pointer *this. First is the operator *= which tests if the transition is enabled to fire at the current mark and, if it is, it increase nrtrp by , adds the transition index to ltrp and writes that the transition is enabled to fire on screen. The second operator is +=, it has the argument a transition enabled to fire, replaces the current mark with the produced mark and it writes on the screen the new mark. Because in the main program we apply the operator *= using the transition index from 1 to the number of transitions and then it is fired the transition with the minimum index the Petri net of our model is in fact a Petri net with priorities: the order relation ρ is a total relation decreasing on the transition index. This order relation is not essential because whenever there exist two transitions enabled to fire the final mark does not depend on the order of these transitions. We can extend using this relation the Petri net with priorities by transitions and arcs from s1, s2 and s3 to empty these places. Of course, these transitions have lower priorities then the transitions from t1 to t5 and their priorities decrease from the transition of s1 to the transition of s3. Because the locations s2 and s3 have the marks and respectively 1 we can consider only one transition to empty them with the weights equal to the marks. Tacking into account the final mark of s1 we can consider two transitions: first with the weight of the arc ba2 and second one with the weight of the arc    (we take into account that a đ pe). +⋅− cf −⋅ ab3 To define a Petri net with priorities we do not need to consider the above total relation: it is enough to consider only a partial order relation between the transitions that can be parallel enabled to fire at a given moment. Therefore the partial relation is such that t1 has higher priority than t3 and t4, and t2 has higher priority than t4. In our   program we define the class priortranz that is derived from tranz and it has in addition the properties nrsucc, the integer number of the transitions with higher priority and lsucc the list of these transitions. We define also the class derived from ++C marc, namely priormarc using the same heritage mechanism. The constructor of priortranz call first the parent constructor, and next initializes the list of successors. the method citire is defined in a similar way. The operator *= for the derived classes checks first if the transition is enabled to fire using the parent operator, and if it is checks if the given transition has no other transition enabled to fire with higher priority. Tacking into account the way we have built the list of transitions enabled to fire using the operator *= we can also consider that the Petri net is a Petri net controlled by queues in the regime c2: the first queue consists in s1 and at any time the queue contains all the transitions enabled to fire and only them. Example 2. Consider in the Petri net of the previous section: 1) 2) b = a = and ps = , ps = , a = and , , cf = cf = . b = . Solution: 1) We have a đ ps, and from here we obtain pe = ps = )T99,0,0 99 and the final mark         . = 2) In this case we have not a đ ps:        . +∗ ( ,0,1,3, and the final mark is We obtain ( = ,0,0,2,1,7, pe =∗ )T . All the above final marks are in the form M6 and verify (7). (Rapoarte Example 3. Consider 21 existing investment founds in April 2000 lunare ale Asociatiei Administratorilor de Fonduri în 1996 đ 1997 đ 1998 đ 1999 đ 2000 đ 2001 đ 2002 đ 2003 đ 2004 đ 2005 đ 2006 đ 2007 đ 2008 đ 2009, Š15Ë). Because we have not the data on the total invested sum, consider as explanatory variable the number of investors (the hypothesis is that the above sum is proportional to this number). As resulting variable we consider the row VAN in the Excel table, expressed in millions lei. The results are in the following table. Table1: The 21 investment founds in April 2000 Found X Y Found X Y Found X Y Found X Y Active Clasic Capital Plus FNI Tezaur Active Dinamic FCEx FON FMT Active Junior FDI Galat¸i Fortuna Classic UNOPC ALPHA ARDAF Armonia FIDE Fortuna Gold  FIG FVG   FNA Stabilo  ++C We apply the    program of classification using polynomial regression from Ciuiu, 2007. The degree of the polynomial is 1 (regression lines). If we consider + = two classes we obtain the first class . .10+ . − , containing the investment founds Active Junior and ALPHA. The other investment founds are in the first class. and the second class . Y =Y X X + − X −= . . If we consider three classes we obtain the first class with the investment Y founds FON, Fortuna Gold and FVG, the second class Y with the investment founds Active Junior and ALPHA, and the third . class             with the other investment founds. . . −= .11 X X Y = + We notice that if we increase the number of classes from 3 to 10 it remains one of the classes containing only the investment founds Active Junior and ALPHA. The coefficient of X for the regression line corresponding to the class containing FNI is 11.74369 for 4 classes, 11.7062 for 5 classes, 12.58743 for 6 classes, 11.28776 for 7 or 8 classes, respectively 11.34757 for 9 or 10 classes. 4. Conclusions In recession time, because of the acute lack of goods, there appear many organizers of such fraud-like investment founds. They promise gains that are not sustainable even in a period of economic boom. A simple Petri net model of this investment founds was presented in this paper. The model can be extended by a transition that models the payment of the taxes to the states budget and the place of it, to maintain the appearance of the honesty of the found. Of course, the possible Petri net model of a honest investment found must be stochastic (see Š11,14Ë) to model the risk of the found: we can not have sure gains. Models using classical place-transition Petri nets and extensions of them are used for the inventory of the products of a factory for selling them to customers by a given number of retailers (see Š11Ë) or raw materials for a printing house (see Š3Ë), for modeling and performance evaluation of hardware/software partitioning (see Š8Ë), or in manufacturing modeling: modeling and evaluation of manufacturing systems (see Š14Ë), modeling and evaluation of its software (see Š5Ë) or deadlock control of flexible manufacturing systems (see Š13Ë). An economic plan for production, supply, quality control and selling in a drugs factory is modeled in Š9Ë by a colored, stochastic, timed and hierarchical Petri net. In this paper was presented also an economic model: the tokens from the places of the Petri net represent sums of money. Two regressions using the Petri net elements as explanatory and resulting variables (nonlinear ones, not linear as in this paper) were used in Š11Ë to optimize the performances of the modeled system. Using a stochastic Petri net there is defined first a probability distribution for firing three transitions in conflict (which share the same resources): p1 for the first, p2 for the second and 1 p1 p2 for the last one. Next there are considered p1 and p2 as explanatory variables (in fact, because of nonlinearity the real explanatory variables are nonlinear functions of p1 and p2), and the resulting variable C the total inventory cost. Using one of the obtained regressions        the optimal cost is obtained in both cases for the minimum point of f. ( 1, ppf C = )2 The operators *= and += are defined in the header petri.h tacking into account that the multiplication has higher priority than the sum: in any Petri net (common or an extension of it) we must check first if a transition is enabled to fire at a given mark and only if it is indeed enabled to fire we it is fired to obtain a new mark. All the properties and methods from the classes tranz and marc are public to have full access to them (including the main program, in which we read some properties as nrloc for marks and transitions and we write some other ones as indice for the transitions enabled to fire). An open problem is to check which of the properties and methods must remain public and which can become private, or at least protected. In Š3Ë it is used the software CPN Tools and in Š5Ë there are used the softwares PED and FUNlite Petri net simulator for the Petri nets. But our header allows us to make classes for extensions of the Petri nets as colored Petri nets (see Š3,9,14Ë), stochastic Petri nets (see Š11,9,14Ë) or timed Petri nets (see Š8Ë) using the heritage mechanism. In the heritage mechanism for the Petri nets with priorities the parent classes are declared in the header petri.h virtual for using multiple heritage. In fact, in practice the used Petri nets are not only simple extensions of Petri nets: for instance we can use a temporal Petri net with priorities. An open problem is to use Petri nets or their extensions for other economic models. For instance we can check if it is a connection between the S invariants and equilibrium equations. Another open problem connected to this paper is to use some other extensions of Petri nets for modeling the fraud-like investment founds or other frauds, like pyramid games for instance. Firstly we can try to use stochastic Petri nets (with simulation of random elements) to model the random elements of the system and hierarchical Petri nets to model the structure of the system. Using timed Petri nets we can also take into the model the time intervals of the operations in the modeled system. For the colored Petri nets (see Š3,9,14Ë) the first step is to build the AS IS model, the next step is to evaluate its performances, to try some changes scenarios (see Š9Ë) to improve the performances of the system and finally to build the TO BE model. An interesting question is if we can go in reverse order: from the TO BE model to the AS IS model. If it is possible we can use colored Petri nets for other models of frauds and even of informal economy (see Š2Ë): the TO BE model will be the false model and the TO BE model will be the real model. BIBLIOGRAPHY Š1Ë Acostâchioaie, D., Programare C s¸i C++ pentru Linux, Ed. Polirom, Ias¸i, 2002. Š2Ë Albu, L. L., A Model to Estimate Spatial Distribution of Informal Economy, Romanian Journal of Economic Forecasting, Vol. 9, No. 4 (2008) 111-124. Š3Ë Andrić, B., Makajić-Nicolić, D., Stefanović, B. and Vujošević, M., Modeling inventory control process using colored Petri nets, Proceedings of the 7-th Balkan Conference on Operational Research, Constanta, Romania (May 25-28 2005) 3-10. Š4Ë Ciuiu, D., Pattern Classification using Polynomial and Linear Regression, Proceedings of the International Conference Trends and Challenges in Applied Mathematics, Technical University of Civil Engineering, Bucharest, Romania (June 20-23 2007) 153-156. Š5Ë Heiner, M., Deussen, P. and Spranger, J., A Case Study n Design and Verification of Manufacturing System Control Software with Hierarchical Petri Nets, The International Journal of Advanced Manufacturing Technologies, Vol. 15, No. 2 (1999) 139-152. Š6Ë Jucan,T., and T¸iplea, F.L., Ret¸ele Petri. Teorie s¸i practicâ, Ed. Academiei, Bucures¸ti, 1999. Š7Ë Jula, D., Introducere în Econometrie, Ed. Professional Consulting, Bucures¸ti, 2003. Š8Ë Maciel, P., Barros, E. and Rosenstiel, W., A Petri Net Model for Hardware/Software Codesign, Design Automation for Embedded Systems, Vol. 4, No. 4 (1999) 243-310. Š9Ë Makajić-Nicolić, D. and Vujošević, M., An Application of Colored Petri Nets to Business Reengineering, Proceedings of the 6-th Balkan Research, Conference Thessaloniki, Greece (May 22-25 2002) 263-272. Operational on Š10Ë Saporta, G., Probabilités, Analyse des Donées et Statistique, Editions Technip, Paris, 1990. Š11Ë Srinivasa Raghavan, N.R. and Roy, D., A Stochastic Petri Net Approach for Inventory Rationing in Multi—Echelon Supply Chains, Journal of Heuristics, Vol 11, No. 5-6 (2005) 421446. Š12Ë Voineagu, V. et all, Teorie s¸i practic? econometric?, Meteor Press, Bucures¸ti, 2007. Š13Ë Zhiwu Li and Na Wei, Deadlock Control of Flexible Manufacturing Systems via InvariantControlled Elementary Siphons of Petri Nets, The International Journal of Advanced Manufacturing Technologies, Vol. 33, No. 1-2 (2007) 24-35. Š14Ë Zimmermann, A. and Hommel, G., Modeling and Evaluation of Manufacturing Systems using Dedicated Petri Nets, The International Journal of Advanced Manufacturing Technologies, Vol. 15, No. 2 (1999) 132-138. Š15Ë Rapoarte lunare ale Asociatiei Administratorilor de Fonduri în 1996 đ 1997 đ 1998 đ 1999 đ 2000 đ 2001 đ 2002 đ 2003 đ 2004 đ 2005 đ 2006 đ 2007 đ 2008 đ 2009,, www.kmarket.ro/fonduri/fonduri.php. University Leader and Quality in Higher Education UDC: 005.94 ; 378.1 C. Rusu, PhD Professor, Technical University Gheorghe Asachi of Ias¸i, Romania crusu¿cetex.tuiasi.ro XII International Symposium SymOrg 2010, 09 - 12 June 2010, Zlatibor, Serbia Apstract. How the university leaders see the reality in the university; to establish the university leader capability to establish the solution for university development; how the university leader could energize, mobilize people (staff) to fight with the reality, to implement his solution. Prior work. The concepts of leader and leadership are used in other organizations in Romania and in the world; for increasing the competitiveness of the universities from Romania, the concepts of leader and leadership should be transferred and implemented in universities from Romania; the managers of universities from Romania to make performance / quality, to turn into leaders should be another policy of recruitment, selection and training them. Approach. The main methods employeed used: questionnaires, structured interview, literature research, own experience. Results. The result of research show us: the ability of management to recognize the problems facing nowadays; the solutions they discern for raising quality in higher education; the possibilities of mobilization / training by the university management staff of universities to implement the proposed solutions. Implication. The paper will help university staff and the politician: to change their attitude related to the leadership in the Romanian university; to offer some principales, methods procedures, technique to be use for a better management in the Romanian University development, to choose the right leaders for Romanian University. Value. The characterization of the leaders in Romanian higher education where does not exist research in the aria. 1. Introduction The leader need to be able to see the reality As a designer see the reality and each leaders see different the reality. Way? Because the reality organizational culture. The reality knowing and understanding the enviroment (E) (Fig.1) The reality of quality imput in the university (XQI) Students applicants (S) Professors and administration staff (S) Material resources assets (A) Information resources (I) Finance resources (F) Theoretical competences of students Quality of research projects Customer satisfaction Student satisfaction University management integrity Decision transparency of university management The compare the quality output of the university with: internal standards, external standards, internal objectives indicative measurable, competitors, history date etc. (B) The reality of quality HE process (HEP) Educational process technology Motivation system in the univer sity The university discipline, proce dures Procedures and process assess ment Students evaluation and the process Staff evaluation Assets utilization The reality output result of the uni versity Practical competences of stu dents University change cause disintegration wich is manifested in what we call problem because university system is composed of subsystems (faculty, departments subsystem support: library, social services for students etc.) and this subsystem do not change in the same speed. Which is the solution? The solution is INTEGRATION. The problem is not out of university, it is within us. When university are healty and used to change, change is invigorating. But if university immune system is weak, a change will get university possible into a trouble. Not every university has problems in time of change. It depend on how healty the system is. The university system is healty when it can deal with change without falling apart. Do you have the courage to see what is doing in our (your) school? Going mediocraticy The leader keep seeing for a diagnostic result The rates lag far behind in socio-economic realities. There are teachers who only attend the changes and teach always the past courses. HE diagnosis need to solve: dilemma of grow, dilemma of power, dilemma of profit, selfinteres and community, materials versus quality. The leaders needs to be able to do comparative analysis. External forces for change in the HE are: deregulation, technology, analysis the reality, swot analysis, discover the crisis. The leader need to be able to ground the solution. Service for university development The leader need to evaluate: vision, mission and strategies from the university Ground the new objectives and startegies for uni versity Creating new university programs Assuming the risk of the solution promoted Assessing, controlling, coordinating quality of edu cational process Search new needs of competence  Curricula design by customer competence needs Search university customer satisfaction Making ground the new internal quality standards Innovating solution for quality imput unproving in HE These are not political decision, only sound business decision. The most important DRIVER of performances in the universities is Leadership. We are all the time in a change management business. The biggest challenge, today, in HE: to develop, mature and spread leadership through un University. A University leader is a thumb. What does a thumb do? It work with all different to create a leader knows how to help people disagree without being desagreable. A leader is able to build and enrich a culture of mutual trust and respect a culture in wich people are not afraid to speak their minds. Without a thumb, you will not have a hand. Without a leader there is not teamwork, and without a teamwork, the cast will be stuck in the mind. The leader need to mobilize, energize, empower people to fight with reality, to implement his solution (moraly ethical social response) Will be necessary to develop a new generation of higher managers wich have to pay attention to: social responsibility, ethics and moral aspects, individual versus cooperation, business orientention, degree curricula change, balance between tradition and modern new teaching technology, cross disciplinary teaching, risk avertion, communication with the internal and external environment, interpersonal staff cooperation Passion (respondes) of the staff: developing the competition to all the level, university management as a team, management by performance, green sustenability, cloth relation with HR corporate sector and allumini, value added by training - new competences (knowledge) theoretical and practical, opportunity costs in HE, selectiveness. 2. Research methodology The main methods used for this research was the questionary, structured interview, literature research and own experience. The questionnaire was related to: how respondents perceived the reality from univer sities regarding the quality of entries in the system the quality of the educational process the quality of the results solutions for improving the quality of the manage ment solutions from universities methods used by university leaders for training / involvement / motivation of staff in universities, for implementation of the solution proposed by the leaders For reasons of space we refer only to the analysis of some aspects of staff training by the leaders. The questionnaire was applied to 186 educators from state and private universities from Romania. The structure of the respondents is: Structure for teaching positions: Age structure: Structure by gender: Structure by leadership position of the leaders: Structure in term of management practice: 3. Conclusion To bring about and implement new solution in the university you need leaders and strong leadership In this period some university managers do not realise that the employees are an asset, not just an expense. The employees can tell to te managers what is going on in the university better that anybody else. There are open-door policies, but how many assistents have you seen walk through the open-door of the university rector, president office to talk to him/her. Generally speeking, it is a elitist managers in the university system, who are not listen to the people they manage. Energy flow from top to bottom based by reports. To achive change, wich is essential for a successful university, we need a university that can change easily. University needs teamwork, cooperation and mutual trust and respect. Managers need to talk more, share more, be open with each other more, and respect each other more. Teach managers how a leader behaves; teach managers to resolve a conflict. University are like a fish tank. Unless we supply them with oxygen from top to bottom management of the university, the fish, organization will die. We have in the university to change what and how we teach. Teach future leadership to listen to university personnel and to each other, to manage more by pride of teamwork and less by workhiping numbers. We have to be together. Integration is the secret of healty organization, and that is how we will turn a crisis into an opportunity and succeed in the future, and leave behind those that are fighting among themselves to catch the cold. The limits of the proposed questionnaire analysis are related to: the standard of other prestigious universitie, we believe that it was differed from one respondent to another; retaining teachers to talk about home things. Even one respondent told us that because he was raised and trained in that university he can only grant votes to the maximum limit. Some respondents considered that some terms are not unambiguously defined, there are situations in which respondents could understand a concept in different ways. The purpose of the questionnaire was to raise awareness, alert forces within the university that some colleagues have the courage to see reality from within the system, they see reality, but not to recognize it. The questionnaire we wanted to emphasize the questions some of the big problems, important to romanian education that university leaders should tackle. I also received many thanks for the content of this questionnaire. I am convinced that reforming the higher education system and other systems that can come only from within the system, but from outside forces. Until now in Romania it have been proposed 6-7 reforms which partially overlapped and who have more disrupt than helped. Outside forces, in our case, is constituted from the members of the academic community from Romania who have received our questionnaires (over 600) and who are present here, in Tulcea. REFERENCES Š1Ë Adizes, I. Leading the leaders, The Adizes Institute Publishing, Santa Barbara C.A., 2004 Š2Ë Adler N.J. The arts and leadership: Now that we can do anything, what will we do? Academy of Management Lerning and Education, 5(4):466499, 2006 Š3Ë Dervitsiotis Kostas N. The importance of conversations-for-action for effective strategic management University of Piraeus, Greece, Total Quality Management, vol.13, no.8, 2002 Š4Ë Deselnicu D.C., Rusu C., Swiger JA - Leadership performance and quality management in roman ian SMEs: a case study -In 2nd international conference on business, management and economics E-Conference proceedings, cesme, Izmir-Turkey. ISSN 13061089, 2006 Š5Ë Dowlatshahi S. Total quality management in higher education: a case study Department of Information and Decision Sciences, College of Business Administration, The University of Texas, USA, Total Quality Management, vol.7, no.2, 1996 Š6Ë Galgano Alberto Quality: mind and heart in the organization Galgano & Associates, Milano, Italy, Total Quality Management, vol.13, no.8, Š7Ë Gopal K. Kanji Can total quality management Š14Ë Rusu,C. - Principles for the Evaluation of the help innovation? Centre for Quality and Innovation, Sheffield Hallam University, Hallamshire Business Park, UK, Total Quality Management, vol7, no.1, 1996 Š8Ë Griffith D.A., Cavusgil S.T. & Xu S. Emerging themes in international business research Journal of International Business Studies, 39(7): 1220-1235, 2008 Š9Ë Mangematin V. & Baden-Fuller C. Global con tests in the production of business knowledge: Regional centres and individual business schools Long Range Planning, 41(1):117-139, 2008 Š10Ë Morgan H., Harkins P. & Goldsmith M. The art and practice of leadership coaching: 131-137, NY: John Wilwy & Sons, 2005 Š11Ë Rusu, B., Rusu C. - Evaluation Results in the University: Management, Teaching Staff, Level of Students Satisfaction -Proceedings of 1st International Conference European Dimension in Quality Assurance. Technical University Gh. Asachi Iasi, Romania, 2001 pg.276 ISBN 973590-581-7 Š12Ë Rusu,C. - The modernisation of engineering education in Romania in the process of transition towards a free market economy - International Congress of Engineering Deans Industry leaders, Melbourne, Australia, 3 6 July 1995 Š13Ë Rusu C. - Aplicarea conceptelor managementului calitatii in invatamantul superior -Quality Assurance in the Romanian Technical Higher Education, Iasi, 1997, P.19-31, ISBN:-973-917847-2. Individual Activity of Teaching Staff, The Dynamics of Quality in Learning Universities Quality Management in Higher Education, Proceedings of The 4rd International Seminar on the Quality Management in Higher Education, Ia?i, România, June 14-15, 2004. Š15Ë Rusu,C. - The University Regarded as a Cybernetic System, The Dynamics of Quality in Learning Universities -Quality Management in Higher Education, Proceedings of The 4rd International Seminar on the Quality Management in Higher Education, Ia?i, România, June 14-15, 2004. Š16Ë Rusu C. - From the managemeny quality to the quality of management -The 4the international seminar on quality management in higher education, Sinaia, Romania si publicate in volumul Conference Procededings, Ed. Performantica Iasi, ISBN: 973-730-225-7, 2006 Š17Ë Rusu C. - Implementation of quality costs in Romanian higher education -Gh. Asachi Tehnical University of Iasi Romania, 12-14 june 2008 Proceedings of the 5th International Seminar on the Quality Management Higher Education Tulcea, Romania Š18Ë Rusu C. - Quality cost in Romanian higher educa tion -Gh. Asachi Tehnical University of Iasi Romania, 12-14 june 2008 Proceedings of the 5th International Seminar on the Quality Management Higher Education Tulcea, Romania Š19Ë Zairi Mohamed Beyond TQM implementation: the new paradigm of TQM sustainability School of Management, University of Bradford, UK, Total Quality Management, vol.13, no.8, 2002 Book review Encyclopedia of Technology and Innovation Management V.K. Narayanan, G.C.OConnor, ed., (Encyclopedia of Technology and Innovation Management), John Wiley, 2010 T his voluminous issue that spreads over more than five hundred pages and seven theme areas presents the technology and innovation management as an autonomous scientific field, which is what editors and authors point out already in the introductory chapter. One consequence of the exceptional multidisciplinarity of the bookis that many results and scientific contributions in this area are omnipresent and related to the contributions to economy and the humanities, then technical, natural, organizational and management sciences and disciplines. The subjects dealing with the technologies and innovation management are taught at a large number of universities and schools worldwide: business and management, organization, engineering and natural sciences, medicine, pharmacy. The encyclopaedia knowledge in this field is a contribution to the concentration and focus of all efforts to present the field of technology and innovation in a coherent manner, with relevant theme units and to clearly apprehend its specific nature and its authenticity. Over eighty authors from the universities from the USA, China, Japan, Great Britain, Spain, France, Denmark, India, Singapoore, and other countries participated in writing this paper. As regards the contents and the definition of technology, this is still an open question and a challenge to both academics and practitioners. A multitude of approaches were devised in an effort to un Ireland, Sweden, Australia, derstand the essence of technology as a universal concept, principle, and model. Since this is a dynamic phenomenon, permeating all the spheres of human life and work in both the social and natural environments, derived from the science and present in practice, the efforts to understand its essence and ensure that technologies are managed is a continual challenge. The evolution of technologies is tracked throughout the human history. The technological creativity on which the sustainable economic growth of the modern era is established stems from two complementary processes the author Joseph Schumpeter termed invention and innovation. The time the innovation is created and the life cycle of the innovation in the periods of growth and development of economy and the society led authors to recognize long cycles in the development that last around 50-60 years each and are characterised by certain unmistakable mechanisms and related to a certain basic technological paradigm. T he emergence of spatial innovative clusters and varied uneven technological growth and development in certain geographical regions have set the grounds for some substantial advantages acquired by the technology transfer from the developed to the less developed countries and regions. Technology intelligence proves to be important on all the levels of society and economy. This is a broad concept that includes collecting and bringing together technical information, the development of technological forecasting, monitoring the scientific achievements and opportunities for further technological growth. The technological intelligence is then observed in the following segments: ratings and validation of technological options, achieving technological competitiveness, using the databases about the patents and other forms of intellectual property, the analysis of technological markets on which the technology transfer between organizations is conducted. Technological forecasting, incremental and radical technological changes, as well as the forms of intellectual property are elaborated in the essays and a specific list of relevant references for these specific theme areas is provided. On the branch level and on the levels of certain industries technologies are analysed through a model of the life cycle of the branch, the branch competitiveness dynamics, special attention being paid to the branches and industries in the area of high technologies. A special chapter of the book is devoted to innovation and highlights the demand and the offer as the key sources of innovation. Statistic and dynamic models of innovation are presented through the contributions of a number of authors in creating these models. Thus we find the analyses of the Schumpeter model, the Albernathy-Clark model, the Henderson-Clark model, the Utterback-Albernathy model, the TushmanRosenkoff model, and the Foster S-curve. Specially analysed are the Rogers, Moores and Bass models of diffusion of information. Open innovation and technological strategy stress the importance of external and internal sources of new technologies, as well as the need to use the technology strategy for the purpose of defining the adequate measure of this relationship as a basis of technological improvement. A special chapter is devoted to the basic concepts of technology and innovation management on the organizational level. The absorptive capacity, learning and establishment of innovative competencies are linked to the organization and stressed as a key factor of innovation success and technology dynamics. Four generations of the research and developement models are presented in the light of the need to manage this phenomenon in order to achieve competitiveness and business success. The development of a new product and the innovations in services, as well as the process innovations are presented via the key specific features and models. National innovation models are theoretically elaborated, and then the national innovation systems of certain countries, namely, China, Taiwan, Singapoore, Japan, Denmark, the USA and others, are described. One chapter is devoted to emerging technologies, and the prevailing technologies in the 21st century, such as biotechnologies, nanotechnologies and networking technologies are analysed. Dr Maja Levi Jakšić Manual for Authors TITLE OF PAPER IN ENGLISH ( two lines at the most ) Marko Markovic1, Ivan Ivanoviæ2 1Faculty of Organizational Sciences in Belgrade 2Faculty of Economics in Belgrade Abstract - These are instructions for preparing papers that will be included in the jou rnal. Your papers should be prepared according to the instructions. 1. INTRODUCTION Papers have to be written in English. Original papers should be typed one sided A4 format (210x297mm). Use margin 2,5 upper, 2 cm lower, left and right. Maximal length of paper is 8 pages including tables, text, pictures, literature and other appendices. Pages are numbered with graphite pencil in upper right corner. Send two copies of the paper (original + one copy) and diskette in format MS Word 6.0. If the last page of text is not filled up, the columns on the last page should be even, of the same length. . 2. SUBTITLE (SIMULATION MODEL) (example: SIMULATION MODEL) In the middle of the first page, after one empty line, insert English title of the paper. Use font Times Roman Bold 14 pt. The name of authors and the names of their institutions in font Times Roman 10 pt. should be centered as in the model given at the beginning of this instruction.. Other parts type in two columns 0,5 cm in between. Paper is typed normal space and double space between paragraphs. Font Roman 10 pt is recommended. Beginning of the paragraph is typed at the very beginning of the columns. The title of the paper and names of authors are followed by short abstract in Italic. All subtitles are typed in Bold, capital letters same sized as in the previous text (not smaller than 10 pt).   3. SUBTITLE (example: COMPARATIVE ANALYSES) r ( σ2 = ) p E ( n ∑ = i [ r p i , − E r ( p )] ) (12) All equations type in one column, numerated at the right side, as illustrated. 4. CONCLUSION All figures, tables or graphic presentations are adapted to the width of one column. If necessary, when the figures do not fit in one column, use the width of the page , and then continue as previously, in two columns. See the figure below. R[$]   Figure 1. Graphic presentation of results t [s] REFERENCES Only the literature related to the problems and main ideas presented in paper should be including and ordinal numbers of the references type in angular brackets. Literature in text has to be quoted in angular brackets to the order of their quotation . For example in [5] it is shown that. The example of literature is shown below. [1] Banks, J. and S.J. Carson., Discete - Event System Simulation Prentice - Hall, New - Jersey, 1984. [2] Bodily, S., Speadsheet Modeling as a Stepping Stone, Interfaces, vol. 16, No.5, pp 34-52 1986. [3] Protic D., Simulation of work on Airport Belgrade. Proceedings of work, SINFF-N, page 75 -81. Zlatibor 