UDC 005 ISSN 1820-0222 Number 61, Year XVI December 2011. 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. Editorial Board: Čedomir Nestorović, PhD, ESSEC Business School, Paris, France 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 Dobrivoje Mihailović, 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 Vesna Bogojević Arsić, Ph.D, Faculty of Organizational Sciences, Belgrade Sladjana Barjaktarović Rakočević, 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 835 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 Copyright © 2004 by Faculty of Organizational Sciences    CONTENTS Corporate Governance in Serbian Banks Sladjana Barjaktarović Rakočević, Sladjana Benković, Snežana Knežević Structural and Cohesion Fund Projects of Regional Development European Union Dragana Kragulj, Miloš Parežanin Implementation and Restraints of Ratio Analysis of Financial Reports in Financial Decision Making Snežana Knežević, Sladjana Barjaktarović Rakočević, Draginja \urić Analysis of Existing Housing Fund and Current Housing Constriction with Focus on real Estate Market in Montenegro Jasmina ]etković, Snežana Rutešić, Miloš Knežević Accounting Information System in Banking Planning and Control Draginja \urić, Snežana Knežević, Sladjana Barjaktarović Rakočević Project Vulnerability: State of the Art and Propositions for Future Framework Development Sanja Jovičić, Franck Marle, Jean-Claude Bocquet, Marija Janković, Ludovic-Alexandre Vidal Cost Reduction in the Time of Crisis Tanja Milić Growth Dynamics and Development Problems of Small and Medium Enterprises Ivan Stefanović, Dragan Milošević Strategic Management Concept and Market Restructuring as a Response to new Challenges of the World Financial Crisis Ivana Domazet, Ivan Stošić, Jovan Zubović Cost Optimization of the REM and HP System Electronic Access Channels Mihailo Jovanović, Siniša Rankov Evaluation of Results of Nonprofit Organizations Milka Ivanović, Zorana Antić Sustainable Water Use in 21st Century Marko Barišić, Andrea Toth, Sanja \urić Recruitment and Selection of Student Volunteers: a Multicriteria Methodology Violeta Cvetkoska, Biljana Sekulovska-Gaber, Marijana Sekulovska Effects of Economic Crisis on Entrepreneurship in Culture Milica Kočović Corporate Governance in Serbian Banks UDC: 005.51:334.72.021(497.11) ; 005.334:336.71(497.11) Slađana Barjaktarović Rakočević1, Slađana Benković2, Snežana Knežević3 1,2,3University of Belgrade, Faculty of Organizational Sciences E-mail: sladjana¿fon.rs The question of corporate governance in banks was initiated again after the financial crisis in 2007 occurred. Some authors find that one cause could be found in an inadequate corporate governance. According to this, robust analyses are performed in order to find whethes and where the errors were made in corporate governance of banks and other financial institutions. The paper especially focuses upon the characteristics of the regulatory framework for the implementation of corporate governance in Serbian banks and point out the shortcomings and potential problems in that process. 1. Introduction The banking industry has a specific function in maintaining the stability and integrity of the financial system on the world level. These are complex institutions that do business beyond the borders of one country and offer services that are far beyond the traditional commercial banking. Banks differ from non-financial institutions by the public funstion they perform and the position of institutions of trust they enjoy in the society. The significance of corporate governance in financial institutions, and accordingly, in banking, has especially gained in importance upon the beginning of the financial crisis in 2007. Furthermore, ceratin authors go as far as to maintain that the cause of the crisis is an inadequate corporate governance. A large number of principles and regulations in the field of corporate governance has been adopted in recent years, nevertheless, their implementation could not make the corporate governance officials prevent the crisis Š23Ë. When a number of banks and other financial institutions suffer problems or go out of business during the crisis, then the question of whether the corporate governance in these institutions was adequate is fully justified. Analysts and regulators are still conducting in-depth analyses of this issue to find out whether and where errors were made in the corporate governance domain in banks and other financial institutions. It is very important to pursue the analysis into how the corporate governance problems can be solved in order that some future financial crises should be prevented or mitigated. Similarly, new directions in research should be sought for as well as possible reforms of corporate governance in the post-crisis period. An adequate corporate governance is undoubtedly of paramount importance for both companies and banks. Corporate governance entails a set of relations between the company management, the board of managers, the shareholders and other stakeholders Š20Ë. Observing the the principles of adequate corporate governance significantly contributes to the increase in the investors trust and consequently to their decisions as to investments. Corporate governance in banks, according to the general principles of corporate governance means the manner in which banking business is governed and controled. It includes establishing a respective set of goals to be achieved, however, also the methods to achieve these goals and the methods of monitoring the extent to which they are achieved. Accordingly, risk management, as an integral part of banking business and bank governance is an important component of corporate governance. Every important participant in corporate governance of the bank is responsible for a certain domain of risk management. The key participants of corporate governance in banks are shareholders, executive board, board of managing directors, internal and external audit, regulators, broad public, etc. Š8Ë. Corporate governance in banks is especially important for developing countries such as Serbia. It helps achieve the stability of the banking system and also restore and retain the trust of depositors and other stakeholders. In the following chapter, upon a survey of literature, specific features of corporate governance are highlighted both from the point of view of regulatory institutions and in the light of financial crisis and its effects on the problem. Then follows the analysis of corporate governance in the Serbian banks and the key elements and problems in the process are discussed. 2. Literature survey The quality of corporate governance on developing markets have been a topic of a research conducted by Ananchotikul and Eichengreen (2009). The research has shown that there has been a significant progress in a large number of countries in the last decade or so. The improvements are most often recorded in the countries whose government is steady, followed by the countries in which foreign investors were ready to lobby in favour of reforms and where other countries in the region conducted similar reforms and influenced one another. The research has also shown that the development of corporate governance has brought considerable benefit in terms of the depth and solvency of the financial market. The problem of corporate governance is reflected in the agency problem, that is, the principle agent problem between shareholders and managers. Levin (2003) believes that the agency problem is more evident in banks in comparison with the non-financial sector, due to information assymetry being higher in the banking sector. The agency problem itself differs in dependence of the ownership structure of the bank. In case of dispersive ownership, the agency problem arises between the management and the minority shareholders, whereas in case of concentrated ownership it is present between the majority and the minority shareholders. According to Köhler (2010), such a situation implies that the regulations related to corporate governance should be adjusted to the specific ownership structure of the bank, rather than to the harmonization of national regulations. In their work, Sullivan and Spong (2007) analyse the extent to which risk taking in banking is dependant of the bank management and the ownership structure, as well as the managers and bank owners personal traits. They primarily explored the effect that the ownership interests of the manager, the control by the majority shareholders and the extent to which managers and majority owners have a concentrated ownership in the bank affect the extent of the banks risky behaviour. The conclusion they have drawn is that when the effects of the manager or owner is highly concentrated in a certain bank, variations in returns are smaller. Especially, the banks in which the key players have a significant portion of their money under risk, do business in a safe and stable manner. The ownership problem in terms of corporate governance in banks is interesting for a large number of researchers. Much research has been conducted as to the manner in which the type of ownership affects corporate governance, risk management and banks performance and whether the ownership structure is an essential de terminant of corporate governance (Tandelilin et al., 2007). The analyses have revealed that the ownership structure is not essentially important for corporate governance. In order that they should implement the corporate governance principles adequately, bank managers should be cautious about the relationships between corporate governance, risk management and bank performance Š4Ë. The research conducted by the above mentioned authors has shown that the banks that pursue the practice of good corporate governance have a better opportunity to improve performance and reduce risk. As regards the ownership structure in banks, Caprio et al. (2007) conducted a research into the ownership of 244 banks in 44 countries. With the exception of a number of countries in which the laws on shareholder protection are extremely strict, banks generally do not have a wide spread ownership. Out of 44 countries in the sample, 21 countries do not have a wide spread ownership in banks among ten largest banks. Banks are most frequently family or state owned. The research conducted by these authors has shown that the ownership structure is an important mechanism in bank management. In their work, Staikouras et al. (2007) explored the relationship between two vital factors of corporate governance: the size of the board of managing directors and the relations between the independent members of the board, on one hand, and the bank performance, on the other. The reesarch was conducted on a sample of 58 large European banks in the 2002 2004 period. The findings have proved that the profitability of the banks is negatively correlated with the size of the boards of directors of the banks, while the composition of the board is in a majority of cases of no importance for the bank profitbility. Talking about boards of managing directors, there is a difference in the manner of work and in the role of the single-stage and the two-stage boards of directors, however, no significant advantage of either model has so far been identified (Nikolić and Erić, 2011). The research carried out by Beltratti and Stultz (2009) analyses the effect on the bank performance as well as the reasons certain banks fared better in such conditions. Although the bank performance in the July 2007 December 2008 period was poorest since the times of the Great Depression, there were significant differences in the return on shares of large banks in that period. The analysis has shown that the banks whose board of directors had closer relations with shareholders had poor performance in the period of crisis. The banks that were doing business in the countries where requirements concerning capital were stricter and where the rgulator was more autonomous in his work had better performance. Besides, large banks with more equity capital and more largely financed out of the deposits in 2006, earned significantly higher returns during the crisis. 3. Corporate governance in banking The process of corporate governance in banks has a complex framework. Due to functional differences between banks and other corporations, banks are subject to a stricter prudential regulation of capital and risk. These differences are further reflected upon the corporate governance practice in banks Š13Ë. From the banking industry point of view, one part of corporate governance includes, among other things, the method in which the board of directors and the upperlevel management manage the banking business. This refers to goal setting and strategy formulation for the banks to achieve these goals, defining the tolerance to risk for the bank, managing the bank on a daily basis, protection of depositors interests, meeting their obligations to shareholders, however, paying attention to the interests of other stakeholders in the banks, too. All corporate activities have to be in accord with a safe and steady manner in which the bank operates, which is in harmony with the prudential and regulatory framework. Due to the importance corporate governance has in achieving the banking goals and risk management in banks, the Basel Committe on Banking Supervision, with the Bank for International Settlements, adopted in 1999 the Principles for Enhancing Corporate Governance in banking organizations. The document was additionally modified in 2006, and also includes the principles of corporate governance adopted by the Organization for Economic Co-operation and Development in 2004. Finally, under the impact of the crisis, these recommendations were modified once again in 2010, in order to promote a quality corporate governance in banks. The document adopted by the Basel Committee, therefore, is void and does not pretend to be a regulatory framework, but presents guidelines and recommendations. The Basel Committee Recommendations highlight the importance of the role of the board of directors, especially the role of autonomous directors and the upperlevel management in banks. In addition, special attention is paid to the role of internal and external audit, to the function of internal control, to transparency in management, to the role of the supervisor in promoting and assessment of the quality of corporate management Š2Ë. Important elements of an adequate corporate governance in banks are the following Š8Ë: Well established corporate strategy; Clear delegation of responsibilities, decision making and authority appropriate to the given level of business risk in the bank; Powerful function of financial risk management; Respect for certain corporate values, rules of business doing and behaviour code; Introduction of financial and managerial incentives to the board of managing directors and to employees, in the form of compensation, promotion and penalties; Transparency and an adequate information flow both internally and towards broader public. In order that corporate strategy be well established in the todays complex environment, the management is required to have a developed system of strategically oriented management accounting as support to strategic planning of bank growth and development, i.e., to strategic decision making. The management accounting system in a competitive environment has to support the bank strategy, which is not possible if it does not include the elements of strategically oriented management accounting. The stress is on a good relationship between the management accounting and the bank strategy Š9Ë. The differences among banks as financial institutions and corporations certainly have a significant effect upon the differences in view of corporate governance among them. These differences primarilly refer to the following aspects of business Š13Ë: Banks have the function of creating solvency that results from liquidity gap between the two sides of the bank balance sheet. The essence of banking is that banks willingly accept the gap that exists in the time structure between their assets and liabilities. As a consequence, the very existence of banks essentially depends on an immediate and constant access to assets, whether these are deposits, shortterm financing on inter-bank market, financing on the security market, or financing by the central bank as the ultimate source of finances. It is this urgent need of banks for solvency that was clearly visible in the period of financial crisis when all possible sources of finances dried up at the same time and for all banks, so Central banks had to intervene to prevent the collapse of the banking system in those countries. Hence an important lesson the regulators had to learn from the financial crisis is to require a stricter prudential regulation related to solvency risk in banks and management of that risk; Banks are institutions with a high level of leverage, that is, their capital structure differs significantly from that of corporations, since they are largely financed from debts;  The bank balance sheets themselves are far less explicit and clear at first sight in comparison with the balance sheets of the companies in other industries; Banks are closely related one to another, due to the fact that they do a large portion of their business with other banks. Hence their direct rivals are simultaneously their important partners in business. The connections among banks are primarily seen in the interbank money market, over-the-counter market of derivatives and in the foreign exchange market. Due to such a situation, the banking sector is highly subject to the domino effect, since problems in one bank are promptly spread to other banks in the system, and even broader; Due to the liquidity gap between assets and liabilities, banks may be endangered by the withdrawal of creditors, regardless of whether they are depositors, investors into credit securities, or other banks. In case large sums are withdrawn, the liquid assets of the bank can very fast be drained. Even a solvent bank can go out of business in case of collective, panicky withdrawal of its creditors; Due to all above listed, banks are, much more than other corporations, controlled and regulated institutions. Regulation primarily refers to the amount of risk banks can take, but also to the banks exposure to one entity or a group of related entities, etc. The crisis underlined the importance of a strong corporate governance in banks. It is in this sense that the chairman of the Basel Committee and the president of the Netherlands bank Not Wellink commented: A careful implementation of corporate governance by banks, together with a strict control and monitoring by the governor can ensure the safety and quality of banks as well as the stability of the financial system. The Basel Committee on Banking Supervision stated certain problems that arose in the period of the beginning of the financial crisis and adopted the principle for enhancing corporate governance in banks. The principles of this new, improved corporate governance, fourteen in total, refer primarily to the role of the board of managing directors, the qualifications of the members and the composition of the board of directors, the importance of the independent members of the board, the importance of an adequate risk management, the compensation system in the bank, etc. Š3Ë. The role of the board of directors is essential in view of the overall banking business, risk management, overall organization and bank management. The board of directors adopts and monitors the risk management strategy taking into account the long-term interest and the safety of the bank. Furthermore, it is in charge of the implementation of the corporate governance principle in banks, as well as of corporate values and rules of behaviour in the institutions. In addition, the responsibility of the board of managing directors is to supervise the work of the upperlevel management in the bank and coordinate their work with the general strategy of business doing. In performing these duties, the board of managing direcors has to take care about the interests of shareholders, depositors and other important stakeholders in the bank. As to the qualifications of the board of managing directors members, they must have an adequate knowledge and experience relevant for the banks business activities. The board of managing directors has to clearly understand the role it plays in the corporate governance of the bank. In addition, the members of the board must have certain competencies and personal qualities required for the office they hold. The board of managers also has to define the corporate governance practice for their own work and take care that these principles are observed, and, if necessary, improved. Furthermore, the practice of an adequate corporate governance means that the bord of managing directors also includes independent candidates that have a required knowledge, qualifications and reputation to perform the defined duties, but who will also devote their time and make efforts towards accomplishing their tasks. The practice of an adequate corporate governance in banks means that the identification, control and risk management are performed permanently, both on the level of the bank and on the level of an individual business unit. The bank should have an independent risk management fuction (in the person of the Chief Risk Officer, etc. ) with enough authority, autonomy, resources and access to the board of managing directors. The risk management unit and internal control have to be informed at all times about the change in the risk profile of the bank, but also with the novel developments in the field of external risk sources. An efficient risk management requires a powerful internal communication throughout the bank and through reporting to the board of directors and the upper-level management. The last, but not the laest item of corporate governance refers to the system and structure of compensations, and especially coordination of compensations to those working on the risks taken. The principles of corporate governance adopted by the Basel Committee refer to the document adopted by the Financial Stability Forum, Principles of good compensation practice as regards recommendations for defining an adequate compensation system in banks Š7Ë. The basic idea included in these principles is to create a basis for an effective compensation management, and that these are harmonized with the risks taken, that an effective control is performed by the supervisor and that stakeholders themselves participate in compensation systems. The compensation practice in large financial organizations is believed to have significantly contributed to the 2007 crisis. Namely, the high short-term profits resulted in ample bonuses to the employees, without any attention being paid to the longterm risks that emerged. The ides of the adopted principles is to reduce incentives for taking high risks that may result from compensation schemes. Insufficient attention paid in the past period to the risks taken used to result in exceptionally high bonuses in financial industry, and the boards of managing directors failed to identify the link between compensation schemes and risk management in financial institutions Š7Ë. The listed principles say that compensation has to be harmonized with all types of risk taken, that the board of managing directors has to actively monitor the creation and functioning of the compensation systems, to control and harmonize them. Compensation for each employee in the firm has to be in harmony with the risk this employee takes on behalf of the institution. National governors include the Basel principles of corporate governance into the legislation and other regulatory acts in order that banks have a powerful system of corporate governance that would ensure and maintain trust of clients in banking institutions. Corporate governance is important for the banking system operations itself, but also for the economy as a whole. The regulators should evaluate corporate governance in the banks on a regular basis. The financial crisis that began in 2007 also brought into light the problems in corporate governance in banks. The new standard of capital adequacy, defined in the Basel III standards, requires considerably stricter rules of bank regulation, with an aim to improve the bank capability of resistance to the future financial crises. One of the objectives of the measures stipulated in the Basel III standards refers to the very improvement of corporate governance in banks. 4. Characteristics of the banking sector in Serbia At the end of the second quarter of 2011, the banking sector in Serbia includes 33 banks, however, it is expected that the number will be reduced by one bank after the merging process of two banks has been completed. Despite the tendency of reducing the number of em ployees in the banking sector of Serbia, this sector has the largest number of employees in the financial mediation industry, 30,000 people. The ownership structure of the banks in Serbia is such that 21 benks are in the ownership of foreign entities, while 12 banks are owned by national entities. The foreign entities owners of the banks come from 11 different countries (Austria, Greece, France, Italy, Slovenia, Belgium, Russia, the USA, Cyprus, Germany, and Hungary). Out of the banks owned by national entities, 8 are owned by the state as a majority owner or the largest individual shareholder, while 4 banks are owned by national private persons. 76% of profits of the Serbian banking sector is in the banks owned by foreign shareholders, as well as 73% of total assets and 71% of total capital and the number of employees. The net assets of the banks at the end of the second quarter of 2011 amounts to RSD 2,476 billion or around ¡ 24 billion, while the total capital of the banking sector of Serbia for the same period is RSD 520 billion or slightly more than ¡ 5 billion Š6Ë. A majority of the most important business categories such as deposits, credits, capital, total assets, earnings, etc. belong to a group of about ten largest banks, while the other, small banks have a modest share in the mentioned categories. Serbian economy is rather bankocentric, due to companies being generally financed from banking loans. This fact is clearly evident from the fact that the share of banks in the overall balance sheet sum of the financial sector of Serbia amounts to around 91.8%, the share of financial leasing creditors amounts to 3.6%, the pension funds have a share of 0.04% (data comprised from Š11Ë and Š15Ë). The most important item in the structure of assets in the banks are granted loans on the level of 63.8% of total assets for the entire banking sector and amount to RSD 1,505 or approximately ¡ 15 billion. Out of the overall granted credits, 55% are loans granted to economic entities, whereas 33% are credits granted to citizens. The share of placements in the securities on the level of the entire banking system is slightly less than 7% of total assets Š16Ë. As to the currency structure of assets, it is predominantly in foreign currency 63%, of which 84% is in euros, 8% in Swiss francs, and 8% in other currency. As regards the time structure of assets of the Serbian banking sector, it is mainly short-term, the prevailing being the demand deposits, 33% of the total assets. The assets with the time of one year have a share of 21%, and the share of the assets with the time of over one year amounts to 45%. Out of the total amount of loans grant ed, 55% are those granted to industrial companies, while retail credits amount to 30% of total credits. The problem bearing credits for the second quarter of 2011 amount to 18.6% of the total credit sum and are slightly rising compared to previous periods Š16Ë. On the other hand, the total capital makes 21% of total assets. The indicator of adequacy of capital of the banking sector of Serbia at the end of the second quarter of 2011is 19.7%. In Serbia, this indicator is set to a higher level by the governor, in comparison with the Basel 8% and amounts to minimum 12%. In the time structure of liabilities, the sources of assets with the maturity longer than one year make 39% of total liabilities. Liabilities are also predominantly in the foreign currency, 63%. Out of total deposits, 56% come from retail sources, followed by the deposits of companies, 24% Š16Ë. In the first six months of 2011, the banking sector in Serbia was profitable, so the earnings before taxes amounted to RSD 17.8 billion or ¡ 176 million. Over 70% of the Serbian banking sector recorded business profits, which means that 9 banks out of the total number in Serbia recorded losses. The returns on assets in 2010 for the entire banking sector of Serbia amounted to 1.1%, with returns on capital amounting to 5.4%. In the second quarter of 2011, the situation improved, so the returns on assets for the Serbian banking sector are 1.4%, while returns on capital amount to 7% Š16Ë. 5. Corporate governance in banks in Serbia As regards strict regulations, both national and the recommendations and guidelines of the international institutions, it is to be expected that the corporate governance in banks in Serbia is on a higher level than corporate governance in Serbian companies. One reason may be in that the majority of the banking sector in Serbia, 63%, is in the ownership of foreign entities that predominantly come from developed West European countries. Corporate governance in these countries appears to be on a higher level in comparison with Serbia, hence the Serbian banking sector profitted in this part as foreign shareholders brought the principles of corporate governance with them. For a share in the capital of Serbian banks larger than 5%, the approval of the National Bank of Serbia is required. In view of this criterion, with the exception of one bank, all the banks in Serbia have a maximum of three shareholders with the ownership share higher that 5% each. Ten banks in Serbia, or 30%, are owned by one foreign owner, all the others have minority shareholders. Out of the total number of banks, 16, or 49%, have majority shareholders with over 50% share in the capital, six banks have shareholders with less than 50% of ownership share, while one bank has no shareholders with a share larger than 5%. Almost one half of the banks in Serbia have up to three shareholders in total. In banks owned by national legal or physical entities the strudture is more indented compared to the banks in foreign ownership. The top ten largest banks on the basis of the amount of assets are owned by foreign shareholders, with the exception of one among them that is a bank with a national owner, concretely in a majority ownership of the state. What is especially important when corporate governance in banking is taken into consideration is the regulation that often includes certain elements that contribute to an adequate corporate governance. Since banks are private institutions with a public purpose, they are paid special attention as regards regulations. The regulatory framework for the banks in Serbia is the Law on Banks and Banking adopted in 2005 and amended in 2010. This Law is harmonized with the European Union regulations as well as with the Basel standards. In addition to this basic law, the National Bank of Serbia, as a regualtor and supervisor of the banking sector in Serbia, adopted a number of regulations that set the basis for an adequate management of banks, as well as for an easier control by the supervisor. All the regulations concerning the banking sector in Serbia include the fundamentals of good corporate governance in banks, part of the Recommendations of the Basel Committee for enhancing governance and also of the Basel standards. Some specific features of corporative govenance of banks in Serbia deserve to be paid more attention to. According to the provisions of the Law, banks in Serbia are established as public liability companies by either national or foreign legal or physical entities. In the establishment process, the National Bank of Serbia has to be submitted the data on the founders of the bank, the amounts of their deposits in the bank and the number, type and nominal amount of shares acquired, and also on all the persons that will have their shares in the bank and on the basis for these shares, as well as the names of the proposed candidates for the board of managing directors and the executive board of the bank, data on their qualifications, experience and business reputation. In case the qualifications or experience of a proposed member of the board of directors or the executive board is not satisfactory, or in case his reputation does not satisfy the requirements, or in case a person to acquire a share in the bank does not satisfy the conditions for that acquisition, the National Bank of Serbia may reject the claim for set ting up the bank. Regulations, therefore, prevent the moral hazard and from the very beginning give opportunity to an adequate corporate governance in banks. Besides, the situation is the same in case the proposed programme of activities of the bank, the business policy plan, the risk management procedures and internal control procedures are inadequate Š25Ë. The Law on banks and banking clearly defines the bank organization as well as the method of its governance. What can be a potential problem or a flaw of this law is that the law provides that shareholders with 1% or more voting shares, shall not be prevented from exercising their right to direct voting. The question is what happens with shareholders whose share in the ownership is below one percent wherther it means that they do not have equal rights, since the law provides that they can be prevented from exercising their right to vote. The law stipulates that the management bodies in the bank are the board of managing directors and the executive board of the bank. It is their obligation to undertake any actions necessary to prevent illegal or inappropriate actions or influences that are either harmful or are not in the best interests of the bank and its shareholders and performed by persons whose share in the bank is considerable or is even a control share. The law further clearly defines the composition as well as the criteria of appointing and the scope of activities of both the board of managing directors and the executive board. According to the law, the Board of managing directors has no fewer than five members, including the president of the bank. The National Bank of Serbia provides the criteria/terms and the qualifications a person has to meet to be elected a member of the board. In any case, at least three members of the board of managing directors are required to have an adequate experience in the financial area. The law stipulates that at least one third of the members of the board of managing directors of the bank have to be persons independent from the bank, namely, persons with neither direct nor indirect ownership in either the bank or the member of the banking group to which the respective bank belongs. As regards the executive board of the bank, this includes no fewer than two members, including the president who represents the bank. The president is not autonomous in making business decisions; according to the law, he is required to ensure a signature of one member of the executive board. Similarly to the members of the board of managing directors, the members of the executive board of the bank are expected to have a good business reputation and qualifications required by the National Bank of Serbia. The contribution in the corporate governance in banks is reflected in the provision of the law that the banks obligation is to form a board for monitoring the business performance of the bank (the auditing board), the credit board and the board for asset and liability management. Also, it is the obligation of the members of the board of the bank to establish a system of internal controls, the function of control of the coordination in banking as well as the internal auditing function. Such provisions in the national law coincide with the Basel Committee recommendations for enhancing governance in the banks. As regards ownership in the bank larger than 5%, regardless of whether it is a direct or indirect ownership, it has to be approved of by the National Bank of Serbia. The regulatory framework in Serbia provides that the supervisor, i.e., the National Bank of Serbia, will supervise the banks financial standing and the statutory operations of the bank in accordance with the law. What, however, is not implemented, is a regular control of the corporate governance itself by the supervisor, otherwise recommended by the Basel Committee. According to the Law on banks and banking Š25Ë, the policy of salaries and other compensations in the bank is also within the scope of responibilities of the board of managing directors. As this is the issue that was not paid due attention to, in its special Decision on banking risks management, the National Bank of Serbia provided the obligation of adopting an adequate policy of earnings and other compensations to the employees, including compensations to the members of the boards of managing directors. this policy is considered to be adequate on condition it is based on the implementation of the business and the strategic policies of the bank, as well as the strategy and the policies in risk management, and on condition it enhances a reasonable and cautious risk taking Š17Ë. A significant portion of corporate governance in banks is taking care of the stakeholders interests. One section of the Law on banks in Serbia is devoted to depositors as significant stakeholders in the bank and to the protection of their interests. It is obvious, however, that it did not function adequately and that banks did not take due care of their stakeholders interest in the scope of their corporate governance. This issue is today better regulated by law, as the Law on the Consumer Protection was adopted in 2011, in which the relationship between the bank and the consumers of its services and stakeholders is defined in a more detailed and precise manner. Special attention in the regulatory framework is paid to risk management in banks. The Law provides the basic guidelines and obligations of the banks in view of an ad equate risk management, however, the National Bank of Serbia adopted a number of regulations as regards a more detailed approach to managing certain risks. As early as the moment a bank is established, it is necessary that it should submit to the National Bank of Serbia as detailed a risk management procedure as possible; if adequate, this procedure is accepted by the regulator. All the regulations concerning risk management are consistent with the Basel principles and recommendations. In accordance with that, the banks in Serbia are obliged to identify, measure, and assess risks they are exposed to in their operations and to manage those risks. Such a law regulation is consistent with the Basel Committee Principles for enhancing corporate governance in banks. Risk management is adjusted to the banks size and its organizational structure, the scope of its activity and the types of business operations it is engaged in. The implementation of the Basel II standards in Serbia commenced in 2007. The full implementation was to begin in 2011, however, it did not, due to a number of banks not being ready to meet new requirements. The full implementation of the Basel II standards in Serbia was postponed until 31st December 2011 with a trial period in reporting in accordance with the new regulatory framework of September 2011. The Basel standards were introduced into the national practice in accordance with the characteristics of the national banking system. The basic goals in implementing the Basel II standards in Serbia are still the strengthening the stability of the banking sector and the financial system; improving the risk management processes in banks as well as improving the riskbased supervision processes; improving the transparency and market discipline; harmonization with the business conditions on the internanional financial market; harmonization with the European Union regulations the EU Directives 48/2006 and 49/2006; creating a stronger link between capital requirements and risk exposure on the bank level Š18Ë. It is important to stress that the National Bank of Serbia has conducted several stress tests to timely identify the possible weaknesses and needs for a preventive recapitalization in case of any extremely pessimistic macroeconomic scenarios. The tests have shown that the banking sector in Serbia is rather resistant to external shocks, due to primarily high preventive capitalization, and owing to prudential restrictive measures of the National Bank of Serbia in the credit expansion period in 2004-2008 Š14Ë. Indeed, due to perhaps excessive restrictive monetary policy of the National Bank of Serbia, the banking sector in Serbia was not really impaired by the attack of the 2008 economic crisis. 6. Conclusion Banks are the major institutions that ensure an efficient raising and orientation/allocation of free money resources, that is, transfer savings into investments, in a large number of countries. Due to the importance they enjoy, banks are paid special attention to in the regulatory framework. Banking is one of the most strictly regulated industries. Due to the importance they have for the entire economy, additional attention is paid to the issue of adequate governance of banks. A very important constituent of the overall bank management process is the implementation of the corporate governance principles. Corporate governance in banks, consistent to the general principles of corporate governance, refers to the manner in which banking is governed and controlled. This entails setting an appropriate group of goals to be achieved as well as methods to achive them and monitor the extent to which they are achieved. An inadequate corporate governance may result inro serious problems in the work of the bank. As the banking market is rather a close-knit market, the domino effect can turn the loss of one bank into losses of other banks in the system, of the deposit insurance system, the system of payments, and consequently, into excessive costs for all the participants. The similar scenario was seen with the crisis that began in the middle of 2007. All these affect the trust into the financial and banking systems, which should not be abandoned so light-heartedly. Adequate corporate governance in banks is paid a lot of attention to. Several times, and the last time was in 2010, the Basel Committee on Banking Supervision issued the Principles for enhancing corporate governance in banks to serve as guideline for both banks and regulators as regrds the implementation of an adequate corporate governance practice. Through the regulatory framework and additional regulations adopted by the National Bank of Serbia, the recommendations of the Basel Committee on Banking Supervision for enhancing corporate governance in banks are included into the respective documents. Thus a strong basis was created for the development of an adequate corporate governance in Serbian banks. No comprehensive control of the implementation of corporate governance principle in the banking sector of Serbia has been conducted so far. What should be additionally clarified in the corporate governance in Serbian banks concerns minority shareholders with less than one percent ownership in the bank. The question is, are their rights inferior to the rights of other shareholders as the law implies that they may be prevented from exercising their right to vote? It is very important for the entire process of corporate governance in banks that special attention is devoted to the system of compensations and pay to the boards of directors and that, in consistence with the newly-adopted decisions, the policy of pay and other compensations be adequately implemented in consistence with the corporate governance principles. It is also to be expected that the new Law on Consumer Protection will raise corporate governance in the banks of Serbia to a higher level, as regards the protection of stakeholders interests Corporate governance is not a rounded and closed process; on the contrary, it is permanently amended and improved. This process is presently under way in a large number of higher developed markets. It is especially important that the process of corporate governance is permanently worked on in a developing country such as this country is. REFERENCE Š1Ë Ananchotikul, S, Eichengreen B, Corporate governance reform in emerging markets: How much, why, and with what effects?, Journal of The Japanese and International Economies, 23, pp. 149176, 2009. for International Settlements, Š2Ë Bank http://www.bis.org, 2011 (novembar 2011). Š3Ë Basel Committee on Banking Supervision, Principles for enhancing corporate governance, 2010. Š4Ë Bebchuk L. A, Cohen A, Ferrell A, What Matters in Corporate Governance?, Review of Financial Studies, Vol. 22, No. 2, pp. 783-827, 2009. Š5Ë Beltratti A, Stulz M. R, Why Did Some Banks Perform Better during the Credit Crisis? A CrossCountry Study of the Impact of Governance and Regulation, ECGI Working Paper Series in Finance, Working Paper N°. 254/2009, 2009. Š6Ë Caprio G, Laeven L, Levine R, Governance and Financial bank Intermediation, 16, pp. 584617, 2007. Journal of valuation, Š7Ë Financial Stability Forum, FSF Principles for Sound Compensation Practices, 2009. Š8Ë Greunning H, Brajovic Bratanovic S, Analiza i up ravljanje bankovni rizicima, Mate, Zagreb, 2006 Š9Ë Knežević S, Barjaktarović Rakočević S, \urić D, Upravljačko računovodstvo u funkciji sticanja konkurentske prednosti i bankarski kontroling, Management- časopis za i praksu menadžmenta, vol. 16, br. 59, pp. 5-13, 2011. teoriju Š10Ë Köhler M, Ownership structure, regulation and the market for corporate control in the EU banking sector, European Journal of Law and Economics, DOI 10.1007/s10657-010-9174-y. Š11Ë Komisija za hartije od vrednosti Republike Srbije, Izveštaj o radu Komisije za hartije od vrednosti Republike Srbije i kretanjima na organizovanom tržištu hartija od vrednosti u Republici u periodu: januar decembar 2010. godine, www.sec.gov.rs Š12Ë Levine, R, The corporate governance of banks: A concise discussion of concepts and evidence, World Bank Policy Research Working Paper No. 3404. 2003. Š13Ë Mülbert P. O, Corporate Governance of Banks after the Financial Crisis - Theory, Evidence, Reforms, European Corporate government institute, Working Paper N°.151/2010, 2010. Š14Ë Narodna banka Srbije, Izveštaj o stanju u finansi jskom sistemu, 2010. Š15Ë Narodna banka Srbije, Godišnji izveštaj o poslo vanju i rezultatima rada, 2010. Š16Ë Narodna banka Srbije, Izveštaj za II tromesečje 2011. godine, www.nbs.rs Š17Ë Narodna banka Srbije, Odluka o upravljanju rizici ma banke, 2011. Š18Ë Narodna banka Srbije, www.nbs.rs, 2011. Š19Ë Nikolić J, Erić J, Uloga i vrste upravnih odbora u korporativnom upravljanju, Management časopis za teoriju i praksu menadžmenta, vol. 16, br. 60, str. 69-75, 2011. Š20Ë OECD Principles of Corporate Governance, 2004. Š21Ë Staikouras P. K, Staikouras C. K, Agoraki M.-E. K, The effect of board size and composition on European bank performance, European Journal of Law and Economics, 23:127, DOI 10.1007/s10657-007-9001-2, 2007. Š22Ë Sullivan R. J, Spong K. R, Manager wealth concentration, ownership structure, and risk in commercial banks, Financial Intermediation, No. 16 pp. 229248, 2007. Journal of Š23Ë Sun W, Stewart J, Pollard D, Corporate Governance and the Global Financial Crisis: International Perspectives, Cambridge University Press, 2011. Š24Ë Tandelilin E, Kaaro H, Mahadwartha P. A, Supriyatna, Corporate Governance, Risk Management and Bank Performance: Does Type of Ownership Matter?, EADN WORKING PAPER No. 34, 2007. Š25Ë Zakon o bankama Službeni glasnik RS br. 107/05 i Zakon o izmenama i dopunama Zakona o bankama Službeni glasnik RS br. 91/10. Structural and Cohesion Funds-projects of Regional Development of EU UDC: 332.1:336.1.07(4-672EU) ; 339.92(4-672EU) Dragana Kragulj, Miloš Parežanin Faculty of Organizational Sciences, University of Belgrade kragulj.dragana¿fon.bg.ac.rs The regional policy of the European Union provides a framework for financing a wide range of projects and investments with the aim of enhancing economic growth in the EU member states and their regions. The three main objectives of the EUs regional policy are: convergence, regional competitiveness and employment, and the European territorial cooperation. Regional policy is implemented through three funds. These are the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund. 1. Introduction The Union makes constant advances in economic integrations, nevertheless, the problems related to regional disparities have not changed significantly. The richest country, Luxembourg, is about seven times as rich as the poorest countries in the European Union, Romania and Bulgaria. This is especially evident in the levels of the social product and uneployment in certan EU regions. The differences among the member states on the level of macroeconomic indicators are certainly big, however, it can be asserted that the disparities in the economic development within certain member states are even bigger. This gap has even spread upon the enlargement of the EU so that these differences have become even more dramatic in the EU-27 in comparison with the EU-15. The regional policy of the European Union is the most important tool used to achieve the so-called cohesion and it means adjustment to new trends and massive restructurings (the development of infrastructure, reduction of unemployment, incentives to industry and all forms of activities) in order to improve the competitiveness of a local economy and thus mitigate the inequalities in the development of the European Union regions. This policy is conducted by financial resources allocated from the European Union budget, through structural funds and the Cohesian fund and consumes one third of the Union budget. The EU common regional policy is not meant to replace national regional policies of the member states since member states have to solve the problems of underdevelopement of their regions by developing infrastructure and attracting investments intended to increase employment in their underdeveloped regions. In conceiving their national regional policies, the member states of the EU are free to build the national regional policy model and select the instruments, institutions and measures. 2. Structural funds and the cohesion fund Structural funds and the Cohesion fund are part of the European Union regional policy. They are meant to reduce the gap in the development between the richer and the poorer EU member states and regions and to promote economic, social and territorial cohesion. In the financial perspective for the 2007-2013 period, the value of these resources amounts to 348 billion euros, which makes 35% of the total EU budget and is the second largest item in the budget. The status of a structural fund in the 2007-2013 financial perspective was granted to the European Regional Development Fund ERDF, and the European Social Fund ESF. Until 2007, this status was also enjoyed by the Financial Instrument for Fisheries Guidance FIFG and the European Agricultural Guidance and Guarantee Fund EAGGF. The ERDF was established in 1975, and was meant to aid strengthening the economic and social cohesion through diminishing the differences in the development levels among the regions within the European Union. The fund supports its users through investments into companies (especially small and medium-sized enterprises), investments into infrastructure (research and innovations, telecommunications, energy and transport), and through financial instruments (funds for local development) and the technical support measures. The ESP was founded in 1958, to finance measures to increase employment in the EU member states and regions, especially in less developed ones. The fund resources are allocated to employees and companies adjustments, planning and expanding innovative work organizations, facilitating access to employment and labour market, socail inclusion and non-discrimination in the labour market, stregthening of human capital and development of institutional capacities and improving efficiency of the public administration at the state, regional, as well as local levels. The Cohesion fund, established in 1993, is meant to support the economy of solidarity in the EU. The beneficiaries of this fund are the member states whose GDP is less than 90% of the EU average. The fund grants financial aid to projects in the fields such as environmental protection and the development of transportation infrastructure. Until the fifth round of enlargement, the beneficiaries of this fund were Greece, Ireland, Portugal and Spain. After the sixth round of enlargement (years 2005/2007), the following states are the beneficiaries: Bulgaria, the Czech Republic, Estonia, Greece, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Portugal, Slovakia, Slovenia, and Romania. In the 2007-2013 financial perspective, financial means from the structural funds and the Cohesion funs are allocated in accordance with the three new goals of the regional policy: goal 1 convergence/coming together (ERDF, ESF and the Cohesion Fund; goal 2 regional competitiveness and employment (ERDF and ESF); and goal 3 territorial cooperation (ERDF). Š1Ë Convergence means efforts in promoting the conditions for improving growth and factors leading to the real convergence of the poorest developed member states and reagions. Among the 27 member countries, this goal is set for 84 regions in 18 member states. The total number of population in these regions is 154 millions (31% of the EU27), and per capita GDP is lower than the 75% the average in the Union. This goal also includes, and this is in a gradual withdrowal phase, 16 more regions with the total population of 16.4 million and an GDP slightly higher than the defined treshhold, due to the statistical effect resulting from the enlargement of the European Union. The sum available to achieve the convergence goal amounts to 282.8 billion euros, which makes 81.5% of the total means to be allocated to regional policies. Regional competitiveness and employment contribute to boosting competition, attractiveness and employment in two ways. First, development programmes help regions predict and promote economic changes through innovations and promotion of the knowledge society, entrepreneurship and environmental protection as well as make them more readily available. Second, more quality jobs will be supported by adjusting the labour force and investing into human resources. The criteria for grants meant for the achievement of this goal are met by 168 regions with a total of 314 million inhabitants. A total of ¡55 billion is allocated for the purposes of achieving the goal of regional competitiveness. The European territorial collaboration is meant to strengthen the crossboundary collaboration through common local and regional initiatives, to strengthen the transnational cooperation oriented to an integrated ter ritorial development, as well as to promote interregional collaboration and exchange of experiences. The population living in border regions amounts to 181.7 million (37.5% of the total EU population). The total of ¡ 8.7 billion (2.44% of the total amount) meant for the purposes of achieving this goal are distributed in the following way: ¡ 6.44 billion for cross-border programmes, ¡ 1.83 billion for transnational programmes, and ¡ 445 million for interregional collaboration. The regional policy of the EU is implemented in achieving these three basic goals employing the financial resources from structural funds and the Cohesion Fund through projects and programmes. 3. Institutional framework of regional policy implementation There is a large number of bodies included in the decision-making procedure and the regional policy implementation. The legislative authority is assigned to the Council of the EU and the European Parliament and they make decisions during a consent granting procedure. The Regional Development Agency of the European Union has competence over any issues within this policy. The right to propose new laws in this area is an exclusive authority of the European Commission, where an important position is the position of the Director General for regional policy. In preparing its proposition, the Commission consults the member states. Very important in decision making in this area is the Regional Comittee whom the Concil and the Commission consult in cases stipulated by this contarct and also in any other cases when one of the two bodies finds it necessary, and especially as regards the issues of cross border collaboration. Each member state is obliged to devise its National Strategic Reference Framework NSRF. In it, each of them define their national strategies in this field and propose all the operations programmes they desire to conduct on their territories. In order to facilitate this process, the European Commission has prepared the Strategic Guidelines on Cohesion, for the purpose of adjusting the project goals to the European Union priorities and of inciting the development of entrepreneurship and innovations, knowledge-based economy and creating as many as possible quality jobs. The states and regions included in this convergence goals are obliged to allocate 60% expenditures to the priorities arising from the European Union growth and employment strategy. In case of the states and regions included in the competitiveness and employment goals this percentage amounts to 75%. The European commission adopted about 450 operations programmes for the 20072013 period. Both social and economic partners, as well as civil sector organizations participate in these operational programmes programming and management. On the level of the operations programme, the member states are obliged to define certain amounts of co-financing. Then the Commission makes a decision which operations programmes they will approve of. In the course of the programme implementation its task is also to supervise the programme activities carried out. Upon the completion of the programme, the member states are obliged to submit reports to the Commission, and it is on the basis of these reports that the Commission reports to the European Parliament, the Council, the Committe for Economic and Social affairs and the Regional Committee on the progress achieved in gaining economic and social cohesion as well as on the manner in which the resources stipulated in this article contributed to it. If necessary, the report is accompanied by appropriate propositions Š2Ë. Before it accesses the European Union, the candidate state is obliged to define appropriate statistical territorial units following the classification implemented by the European Union. The classification of statistical regions is performed following the NUTS methodology (French: Nomenclature des unités territoriales statistiques NUTS), stipulated in the Union Decree No. 1059/2003 of the European Parliament and the council on adopting the common classification of territorial units for statistic purposes. On accessing the European Union, the statistical classification is officially recognized as NUTS regions of a new member state and, in accordance with the above quoted regulation, member states are not allowed to change the existing classification over the next three year period. The present classification on the territory of each member state specifies three basic levels, NUTS I, NUTS II, and NUTS III. Each territorial unit in the NUTS classification has a specific code and title, hence the territorial units on the same level in one country cannot be assigned the same title. The starting criterion in establishing the NUTS classification are the existing administrative units. In case there are no appropriate administrative units for a certain NUTS level, the NUTS level constitutes by joining a required number of smaller territorial units, also taking into account other relevant criteria such as geographical, socio-economical, historical and geopolitical circumstances, cultural and natural conditions. Š3Ë Table 1 NUTS classification of regions NUTS regions are therefore the statistical-economic regions that make the basis for the European Union regional development policy planning and implementation and the NUTS classification absolutely supports the totality of a state. On the basis of the data collected on this level it is possible to satisfy the general and common needs of the population of one region, whether it is the construction of roads, the educational or health care institutions, cultural institutions and anything dealing with the progress of a region and the improvement in the quality of life of the citizens. It is in this manner that the region is in a position to satisfy its general needs, however, adjusted to the ovarall interests expressed on the state level. 4. Cost-benefit analysis of the project While the member states are responsible for the previous assessment, the task of the EU Commission is to analyse the quality of the mentioned assessment in order that it should accept to co-finance the proposed project and determine the co-financing rate. The regulations of the cohesive policy of the EU requres the cost-benefit analysis (CBA) to be conducted for all the major projects financed by the funds. In order that a uniform quality of the project propositions be ensured, the European Commission has published specific guidelines for the cost-benefit analysis of investment projects financed by these funds. The document on the basis of which the project evaluation is carried out is structured into six parts: 1) Context and goal analysis; 2) Project identification; 3) Feasibility and option analysis; 4) Financial analysis; 5) Economic analysis; 6) Risk assessment. Š4Ë Figure 1 shows that in case of the financial profitability of the project, the EU does not provide financial aid. It also shows that economic analysis is of predominant importance for project acceptance, hence it will be paid special attention to in this paper. Figure 1 Cost-benefit analysis of investment projects The first logical step is a qualitative analysis of the socio-economic context and goals that are expected to be directly or indirectly achieved. It is in this part that the connectedness of the project goals and the operations programme priorities and consistency with the EU funds are observed. A clear and full definition of socioeconomic goals is necessary to define the project impact. It is, however, often difficult to predict all the effects of a given project. The changes in the benefits also have a large number of constituent parts. While the assessment of social benefits from each project depends on the goals of the economic policy of the partners participants in the project, the basic means from the Commissions perspective is the logical connectedness of the project with the major goals of the funds involved. In addition to the major goals of individual funds, the project has to be consistent with the EU laws in the respective support sector, especially in case of transportation and environmental protection and in view of the regulations concerning competition. Identifying means that the project is a self-sufficient unit of analysis, i.e., that no significant part of the project is out of the scope of the analysis; indirect and related effects are adequately covered (e.g., changes in the use of other transportation models) and their costs and benefits will be taken into account. As part of support, structural funds are obliged to finance the expenditures of larger projects, i.e.: a) those that include economically inseparable series of works that in turn have a certain technical function, as well as clearly identified goals and b) those whose total price is taken into consideration in defining the contribution of the funds exceeding ¡ 50 million. In case of the Cohesion fund, the projects including the groups of similar projects too, have to be of big enough a proportion so that they may have a significant effect either in the field of environmental protection or in the infrastructure networks of the transeuropean transport. In any case, the total price of the project or a group of projects should, by a rule, not be lower than ¡ 10 million. The projects or groups of projects that cost less than this amount can still be approved of in justified cases. The identification of projects that need a better assessment may in certain cases result in the member states being required to re-consider certain subprojects as one large project and provide additional information in this respect, such as the cost-benefit analysis. Š5Ë Feasibility does not refer only to engineering aspects; in many cases it also includes the aspects of marketing, management, implementation analysis, etc. Different project options are often adopted so that a socio-economic objective is achieved. The proponent should provide evidence to prove that his/her choice of the project is the best of all the feasible options. In certain cases, the project may be considered feasible from the point of view of the cost-benefit analysis, however, less favourable compared to other alternative options. A typical feasibility analysis is to assert whether: a) local environment is adequate for the project (i.e., there are no physical, social, or institutional barriers); b) the demand for services will be adequate (long-term predictions); c) the appropriate technology is available; d) the degree of infrastructure exploitation is adequate, or the factories do not have any unemployed capacities; e) personal skills and management will be available; f) time horizons and realization; g) environmental protection aspects, etc. 5. Financial analysis The primary goal of the financial analysis is to calculate the indicators of net returns on the basis of the predicted net cash flow of the project. It consists of a series of interrelated calculations and is expected to include the following components: 1) time horizon of the project; 2) total costs and returns from the project; 3) adjustment to inflation; 4) the remaining value of the investment; 5) financial sustainability of the project; 6) defining the major performance indicators; and 7) defining the rate of co-financing. Š6Ë The time horizon can be defined as a maximum number of years for which it is possible to make predictions. Predicting the future can be described as a period corresponding to the utility cycle of the product and is long enough to include all impacts in the medium term or a long term. Although the project time horizon is often undefined, it is usually assumed that there is a moment in time when all the assets and liabilities are simultaneously liquidated. The choice of the time horizon length can have a significant impact upon the process evaluation results and the co-financing rate provided by the EU. The time horizon for a majority of projects is 20 years, whereas for production investments it is up to 10 years. Each project proposition has to justify a specific time horizon. The data on the price of the project are obtained by calculating the total investment costs (land, licences, patents, etc.) and the exploitation costs (labour force, raw materials, energy supply). The international methodology of the financial analysis of the projects based on the money flow proposes that the financial analysis and the investment profitability should be conducted using the total investment costs which are reported on submitting the application (in other words, no costs incurred after will determine either FRR or other indicators).Š7Ë Nevertheless, in certain cases the Commission may allow that certain costs incurred within the total costs prior to submitting the application, be also included. Certain projects may earn their own income from the sales of products and services. This income will be determined by predicting the quantities of provided services and by relative prices. In certain cases (e.g., in case of railways or aqueducts) the investor need not simultaneously be the body that manages infrastructure, and in such a case the mentioned body will pay the tariff (or a similar compensation) to the investor. This tariff need not include all costs, which in turn contributes to creating a gap in financing. The incomes that should be taken into consideration in the financial analysis are generally those going to the infrastructure owner. However, depending on the case, the Commission may require that the financial analysis is reconciled for both contracting parties. The project analyses generally use fixed prices. i.e., the prices reconciled to inflation and fixed in the base year. If, however, the change in the relative relations of prices are expected for example, when the regulatory body is expected to allow for the tariffs to rise in accordance with the inflation rate reduced for the productivity growth, and when the input (e.g., energy substances) prices are expected to rise by a higher rate, then the current prices are used in calculations. In case fixed prices are used in calculations, a real (r) discount rate is used; when current prices are used, the nominal discount rate is used (n): where i is the inflation rate. Š8Ë (1+n) = (1+r)*(1+i), (1) Among the income items in the final year under consideration there is the remaining investment value (e.g., undischarged debt, undischarged assets such as premises and plants, etc.). The remaining value will be analysed only if it results into real returns for the investor. The remaining value is calculated in two ways: a) analysing the remaining market value of the fixed assets, in such a way as if they should be sold at the end of the time horizon under consideration and b) through the remaining value of the total assets and liabilities. The discount value of each future net income after the time horizon should be included into the remaining value. In other words, the remaining value is the value that should be repaid. A project is financially sustainable when it is not exposed to risk of running out of money (cash) in the future. Cricially important for the financial sustainability of the project is the compatibility between the money inflows and outflows in different time periods. Financial sustainabiity is achieved if a cumulative net cash flow is more than zero in each year of the project cycle. The performance indicators used in the financial analy sis are the financial net present value (FNPV) and the financial rentability rate (FRR). Both indicators are calculated for both the investments and the capital. To discount the financial flows into present ones and to calculate the net present value it is necessary that an appropriate discount rate be calculated first. The key principle is the opportunity cost of capital. To get the support from the European funds, the project and its FNPV has to be negative, and the FRR has to be lower than the discount rate applied. Empirical resarch show that projects from the fields of industry, telecommunications, etc. are most frequently characterised by positive values of the indicator of financial return on investment, whereas the values of these indicators in the projects in the fields of environmental protection, water supply, transportation etc., are most frequently negative. When the financial analysis shows that an investment is not profitable from the financial point of view, it is necessary to determine the cofinancing rate that the EU is expected to cover from its funds or from other sources. Naturally, the project must first be subject to economic analysis and prove that it earns a benefit for the society. Structural funds cover a maximum of 75% of the total allowable, and, as a general rule, at least 50% of allowable public expenditures in case measures are applied in the regions included in the goal of achieving convergence. In case the regions are part of the member state covered by the Cohesion fund, the EU contribution may grow, in specific and and legally justified cases, (a) to a maximum 80% of the total allowable costs and to a maximum of 85% of the total allowable costs for most distant regions; (b) to a maximum 50% of total allowable costs, and, as a general rule, at least 25% of allowable public expenditures in case the measures are applied in the regions included in the goals of regional competitiveness and territorial cooperation. Š9Ë 6. Economic analysis of the project The economic analysis of the project serves to assess its contribution to the economic progress of a region or a country. On the contrary, the financial analysis is applied to determine the projects contribution to the welfare of the infrastructure owner. The key concept in the economic analysis are the accounting (shaddow) prices based on the social opportunity costs instead on current, market prices. The economic analysis should include the following elements: 1) fiscal corrections; 2) monetization of market effects and externalities; 3) conversion of market into accounting prices and 4) calculations of an economic performance indicator. Certain elements of the financial analysis are pure transfers with no economic importance, therefore it is necessary that corrections of fiscal effects be made. The financial support to the investor from the part of the govenment is a pure transfer which does not create any value but is a benefit to the investor only. To correct such deviations it is necessary that the following general rules should be applied: All input prices should be net, without VAT and other indirect taxes taxes paid by the project customers are then paid by the project owner to tax administration and the tax administration in turn returns these taxes to the customers in the form of public expenditures. The input prices, including earnings, should include all direct taxes employees get net earnings, the taxes go to the government that transfers them to the employees, the retired, their families, etc. The resources (support) obtained from public entities are transfer payments, hence they should be left out of the incomes in the economic analysis. Regardless of the general rules, the transfer payments and indirect taxes are in certain cases included into the calculations of project externalities. Typical examples are taxes to energy prices that are meant to discourage environment-related externalities. In this case, as well as in similar cases, including these taxes into the project costs may be justified, however, double counting should be avoided in evaluation (e.g., including both energy taxes and the assessment of external environmental costs into evaluation). The next step in the economic analysis is to include and calculate socially relevant effects for which no market value exists. It is necessary to check whether such effects are identified, quantified and whether they are assigned real money value. An appropriate conversion factor can, in addition to the financial, include non-market benefits the project creates. In case a conversion factor is not defined or in case the project does not earn income, alternative approaches are used. The most frequent method is willingness to pay. It can be estimated indirectly, by observing the customer in a similar market, or directly, by learning what his attitudes are. In case of certain outputs for which it is not possible to identify the customers willingness to pay for them, long-term marginal costs can be applied. In empirical assessments, the willingness to pay is most frequently higher than long-term marginal costs. Externalities are not always possible to express adequately by the customers willingness to pay for the goods, by long-term marginal costs or a conversion factor based on prices on border. Hence it is sometimes necessary that externalities be assessed separately. The ruling prices arising from imperfect markets and the public sector policies in forming prices mos frequently do not reflect the opportunity cost of the input. In most cases this can be important in the project evaluation, hence financial data may offer a wrong picture of the project importance. The deviation of market prices from socially opportunity costs may be present in less developed countries, however, also in developed countries (e.g., free land, electric energy prices below long-term marginal costs, non-economic prices of water, etc.). Whenever significant price deviations affect certain inputs, the proponer of the project should take this issue into consideration in the course of project evaluation and use accounting prices that can better illustrate the socially opportunity costs of resources. The critical input in infrastructure-related investment projects is labour force. Distorsions in earnings are frequent in practice due to an imperfect labour force market, other macroeconomic impabances, high unemployment rate etc. In such cases, the project proponent should resort to correction of nominal pays and use accounting earnings (shadow sallaries). Shadow sallaries are sensitive to regional differences, since labour is a less mobile factor in comparison to capital. In an economy characterised by high unemployment, the opportunity cost of labour force used in the project may be lower than the real sallary rates. Additional employment is primarily a social expenditure. This is the engagement of labour force resource by the project which thus becomes unavailable for alternative social purposes. A relevant benefit is an additional income earned by creating jobs and this is taken into account in evaluating the direct and indirect net outputs resulting from the project. Hence it is important that the project effect should be assessed in the following cases: It is necessary to check the losses of employment in other sectors as a result of the project: gross benefits from employment may overestimate the net effect. The project is sometimes said to maintain the jobs that would otherwise be lost. This may be relevant for renovation or modernization of the existing factories. This type of the argument should be supported by an analysis of cost structure and competitiveness with and without the project. Certain goals of structural funds are oriented to concrete employment goals (e.g., the young, those long unemployed) and it can be important that different effects per target groups should be taken into consideration. In certain cases, in cases of no absolute currency convertibility, the parametre in the analysis is the conversion currency rate as an economic price of foreign currency. The more the currency rate differs from the official exchange rate, the higher the likelihood of depreciation or appreciation, which may affect the project performance significantly. Generally, it is best to use a Standard Conversion Factor (SCF) since it reflects the same distorsions as the conversion currency rate, and besides, it can be used together with other specific (for certain sectors) conversion factor(s). The SCF value is assessed on the basis of the export and import values, using the following equation: SCF=(M+X) / ((M + Tm) + (X - Tx)), (2) where M = imports, X = exports, Tm = import payments, and Tx = export payments. In defining conversion factors attention should be paid to how social expenditures are affected by the deviations of market prices from 1) marginal costs for internationally non-exchangeable goods, e.g. local transport services and 2) the price on border for internationally exchangeable goods, e.g., industrial products. The key empirical factor for the decision whether the prices on border should be taken into account are the differences in prices in the country (per regions, per different customer categories, etc.). In case of non-excahngeable goods, a standard conversion factor or a specific conversion factor are aplied, determined on the basis of long-term marginal costs or customer willingness to pay for the goods. Š10Ë Upon the correction of price deviation it is possible to calculate the economic internal rentability rate (ERR), economic net present value (ENPV) and the cost-benefit coefficient. To obtain these indicators of economic performances of a project it is neccesary to determine the discount rate, and in the economic analysis it is the social discount rate. It reflects the social standing on how the future benefits and costs should be assessed as related to the present ones. Literature and international practice offer a succession of different approaches to the interpretation and selection of the value of the social discount rate to be adopted. The European discount rate of 5%, however, can be justified in different ways and can be a standard landmark for the EU funded projects. The difference between the ERR and FRR is in that the former applies accounting prices or the opportunity costs of goods and services instead of imperfect market prices and includes all the social and environmental externalities as broadly as possible. Due to the fact that now externalities and shadow prices are taken into account, a majority of projects with low or negative FRR will have a positive ERR. Upon an actualization with a 5% discount rate, every project with an ERR lower than 5% or with a negative ENPV should be carefully evaluated and even rejected. The same applies to the cost-benefit coefficient lower than 1. In certain exceptional cases, a negative ENPV can be accepted in case of important monmonetized benefits, however, these should be presented in detail because such a project will make only a margin al contribution to the goals of the EU regional development policy. In any case, the report on assessment should confirm, conclusively and with structural argumentation supported by adequate data, that social benefits exceed social expenditures. Š11Ë 7. Risk assessment Risk assessment means defining the likelihood with which a project will achieve satisfactory results. A recommended risk assessment procedure is based on: Sensitivity analysis, as the first step, which means the effect of the anticipated changes in variables determining the costs and benefits of a project; The second step is a study of likelihood distribution for selected variables as well as calculations of anticipated value of the project performance indicator. The purpose of the sensitivity analysis is to select critical variables and model parametres, i.e., those whose variations, whether positive or negative, have a most significant effect upon the internal returns rate and the net present value of the project and cause the most important changes in these parametres, in comparison with the value used as the best estimate in the basic case. The criteria that should be adopted in the selection of critical variables vary depending on the project, hence they have to be accurately assessed from one case to another. A combined analysis of certain optimistic and pessimistic values of a group of variables can be useful in presenting different scenarios within certain hypotheses. To define optimistic and pessimistic scenarios, it is necessary that extreme values within the scope defined in the likelihood distribution should be selected for each critical variable. Then the performance indicators are calculated for each hypothesis. When the critical variables are defined, and for the purpose of risk analysis, it is necessary that each of them be allocated a likelihood distribution defined by a precise scope of value around the best assessment used in the basic case and calculate the assessment index. With an increase in the complexity of the cost-benefit analysis, even for a few variables, the number of combinations will soon become too high for a direct procedure. Having in mind the above stated, it is possible to use the Monte Carlo method for investment projects, implementing an appropriate software for calculations. This method consists of repeating a random extraction of a set of values for critical variables, within respectively defined intervals and then calculating the performance index for a specific project. Š12Ë 8. Effects of the EU regional policy Effects of the EU regional policy are, as a rule, diffcult to evaluate for the simple reason that reagional policy is not easy to separate from other sources of economic growth and, also, the level of development the economy would reach had there not been interventions through the regional policy instruments cannot be easily determined. Since the period of the regional policy implementation in the 2007-2013 period has not yet been completed, the effects of regional policy can be viewed only for the previous period. According to the EU research for the 2000-2006 budgetary period, an additional 0.9 euro of investments from other sources is allocated per each euro spent in the implementation of common cohesion policy in the regions using the funds from the convergency goal. Also, in the regions using the funds allocated for the regional competitiveness and employment goals, additonal 3 euros of investments are allocated per each euro invested through the EU cohesive policy. The programmes within the regional competitiveness and employment were of paramount importance for the creation of new jobs. Estimates are that more that 450 000 new jobs have been created in the six countries in which the evaluation was conducted. A large number of small and medium-sized enterprises have in this period received financial resources from the European Union funds. The Spanis programme of support to small and medium enterprises alone provided financial support, advice and training for 227 000 small and medium-sized enterprises (around 28% of the total number). The evaluation of the Staiermatk programme in Austria proved that 75% of business development related projects were conducted by small and medium-sized enterprises, much more than expected. In Great Britain, around 250 000 small and mediumsized enterprises were supported through various measures in this countrys regions. An efficient transportation system is a key factor of regional competitiveness and development. This area is one of the key domains of the cohesion policy. During the 2000-2006 period, significant funds were spent for road transport (47% of the total funds allocated for the development of transportation) and railway transport (31% of total funds). Investments into airports also helped reduce the problems to reach certain regions, especially the most distant ones. The evaluation report on investments into transport infrastructure in the regions included into the convergence programme point that the built infrastructure improved the connections between the regions and other national centres and reduce the time for travelling by 20-50% on average. Besides, a significant effect upon the employment level was recorded, due to conducting massive relief works. Š13Ë The direct effect of investments upon transportation is also observed in the rise of employment, primarily in the construction sector. Furthermore, the demand for building material and machinery increases. These effects are evidently short-term and last during the works. The long-term effects of an investment depend on the existing of additional investments into a certain region, on labour force characteristics, development level of entrepreneurship, etc. On the other hand, it must be recorded that the flaws are sometimes inappropriate maintainance of certain stretches of, primarily, railway and road transportstion, incompatibility of national priorities with the EU priorities (despite recommendations, only five large countries have a developed network of fast railways), insufficient employment of certain potentials, such as the Danube, as well as insufficient engagement of certain financing sources, such as the public-private partnership (only a small number of larger projects have been completed using this form). The cohesion policy has significantly contributed to environmental protection as a basic precondition of sustainable development and a better quality of living, as well as to enforcing the legislature in the field of environment. Around 13% of funds was spent on the water supply, water protection, waste recycling, sustainable energy sources, protection from noise and air pollution investment projects. Best results have been achieved in the domain of water supply. Š14Ë The European Union regional policy has not brought only investment projects; it ha salso brought a strategic approach to the development of transportation infrastructure and environmental protection. It helped harmonize environmental principles with the goals and measures of other sector policies. This harmonization has been achieved; however, full integration has not yet. Similarly, strict environmental standards and rules ensured that the financed projects are environmentally-friendly, designed to work consistent to the ruling legal framework in the environmental domain and that their effects on environment are controlled in the course of their execution. 9. Conclusion The existence of common regional policy on a supranational level is justified by the fact that the differences in the development levels of the regions can be corrected efficiently only employing the mutual efforts of all the member states. Economic and social differences among the member states that are most often reflected in disproportions in the level of the social product and in unemployment, urged the policy creators to develop a common regional policy, along the existing national regional policies. The importance of the supranational regional policy is reflected in the fact that it is only on the European Union level that necessary and sufficient re sources can be collected for the purpose of developing less developed regions and thus reducing the high price certain member states would otherwise be forced to pay. It is also important to stress the role of regional policy as an efficient coordination mechanism between the member states. Namely, the lack of collaboration among the member states results in a negative competition and the undesired effects of certain measures that are unilaterallly enforced by certain member states. An uncoordinated enforcement of national policies may result in unloyal competition, thus reducing the positive effects for all the member states, and consequently the benefits of the European integration process. The institutional framework of the state project proponent must be such that it offers well established institutions that have at their disposal the professoonals on respective regional levels, that will assess the development needs and stress the priorities to be translated into feasible project propositions for the support to development as well as implement the development projects and programmes that can be financed by the structural and the Cohesion funds. Clearly defined procedures for employing the means from these funds ensure an easier implementation of the project and a better monitoring of project goals achievement. The project proponents are expected to supplement their project proposition with a cost-benefit analysis of the project. It is for these purposes that the European Commission published a Guide to CBA of investment projects. The cost-benefit analysis of investment projects encludes the following: 1) context and goal analysis; 2) project identification; 3) feasibility and option analysis; 4) financial analysis; 5) economic analysis; 6) risk assessment. Special attention is paid to the economic analysis of the project since it is to show whether the society is better off with this project or without it. The project proponent also has to be acquainted with the NUTS classification of regions and the National referent strategic framework in order that he should know which type of investment is appropriate for a given region. The European Commission identified globalization, demographic changes, safe and renewable energy sources as major challenges for European regions in the period to come. Accordingly, there is already a debate on how these challenges can be incorporated into the regional policy for the following period, from 2014 till 2020. This is of special importance for Serbia too, because Serbia is expected to become a member of the European Union by 2020. Consequently, the priorities and the rules to be defined for structural funds will apply to Serbia too. Practically, the priorities and the rules defined for structural funds will be reflected in the IPA resources as well. At the moment, the efforts of the Republic of Serbia have to be oriented towards establishing the structures for employing the IPA resources and the preparation of projects to ensure an easier use of the IPA resources and later the structural funds and the Cohesion fund. REFERENCES Š1Ë European Union regional polisy http://ec.europa.eu/regional_policy/thefunds/cohesion/index_en.cfm, polednji pristup, jun 2011. Š2Ë Mirić O., Regionalna politika evropske unije kao motor ekonomskog razvoja, Evropski pokret, Beograd 2009. Š3Ë Council Regulation (EC) No 1059/2003 of 26 May 2003 on the establishment of a common classification of territorial units for statistics (NUTS). Š4Ë Kirkpatrick, C.,Weiss, J., Cost Benefit Analysis and Project Appraisal in Developing Countries, Elgar, Cheltennan, 1996. Š5Ë Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No1260/1999. Š6Ë European Commission, Financial and economic analysis of development projects, Office for Official Publications of the European Communities, Luxembourg, 1997. Š7Ë Benković, S., Potentials of project financing proj ects, Management, 49-50, Faculty of Organizational Sciences, Belgrade, 2008. Š8Ë Pohl, G., Mihaljek, D., Uncertainty and the dis crepancy between rate of return estimates at project appraisal and project completion, World Bank, Washington D.C.,1991. Š9Ë Council Regulation (EC) No 1084/2006 of 11 July 2006 establishing a Cohesion Fund and repealing Regulation (EC) No 1164/94 Š10Ë Kohli, K.N., Economic analysis of investment projects: A practical approach, University Press for the Asian Development Bank, Oxford, 1993. Š11Ë Florio, M., The economic rate of return of infra structures and regional policy in the European Union, in Annals of Public and Cooperative Economics, 1997. Š12Ë European Commission, Guide to COST-BENEFIT ANALYSIS of investment projects, Brussels, 2008. Š13Ë European Commission, The Growth and Jobs Strategy and the Reform of European cohesion policy - Fourth progress report on cohesion COM page 281 final, Brussels, 2006. Š14Ë European Commission, Fifth progress report on economic and social cohesion: Growing regions, growing Europe, COM page 371, Brussels, 2008. Implementation and Restraints of Ratio Analysis of Financial Reports in Financial Decision Making UDC: 657.14/.17(047.32) ; 005.52:005.33 Snežana Knežević¹, Slađana Barjaktarović Rakočević², Draginja \urić³ ¹Faculty of Organizational Sciences in Belgrade ² Faculty of Organizational Sciences in Belgrade ³Banca Intesa knezevic.snezana¿fon.bg.ac.rs Financial ratios are used to compare the financial performance of companies during the period and comparisons between companies, focusing on similarities, differences and trends. They are used by managers, financial analysts, appraisers, regulators, investors, creditors and others. As a managerial technique, the ratio analysis has a very wide application, but also certain restraints, hence the results obtained should be interpreted carefully, in order that they should serve as a basis for evaluating financial performance and decision making. 1. Introduction A permanent challenge facing managers, consultants and financial analysts is how to harmonize the functional activity and discipline and at the same time, provide support to corporate strategy. Significant evolutionary changes towards creating a more modern company, in line with the changes caused by the market globalization, internationalization of business, the development of information technologies and especially a competitive economic environment characterise the present period. Continual interactions with the events both within and without the company are the major reason that an anlysis of the quality of financial reporting is necessary. The management of the business entity is legally responsible for a valid and objective reporting of the financial position, the business results and the changes in the financial position of the business entity that is being reported about. 2. Management accounting and decision making The accounting system is a vital component of the companys information system. The major goal of accounting is to provide information useful in decision making. Hence accountants are expected to identify the requirements of the users of financial information, on one hand, and the types of decisions, on the other Š1ËŠ2Ë. Financial reports are actually designed for general use, that is, they are not specific of one target group of users. The decision-making process generally consists of the following steps: 1. Identifying different alternatives for given types of decisions; 2. Integrating necessary data for different alterna tives; 3. Analysis and anticipation of the consequences of each alternative, 4. Selection of the alternative that points to and helps achieve the desired goals; 5. Implementation of selected alternatives; 6. Evaluation of the results of the business decisions against standards or other desired results in regular intevals. The tools of managerial decision making are the following: 1. Alternative business decision making; 2. Flexible budgeting and variant analysis; 3. Capital budgeting; 4. Incremental analysis; 5. Analysis of relations among costs, scope and prof its; 6. Analysis of returns on investments, quantitative analysis; 7. Analysis of cost flows; 8. Safety of shares statistical testing, etc. Financial analysis incorporates the following segments: 1. Basic financial reports; 2. Strategic and tactical decisions; 3. Management accounting techniques; 4. Information required in decision making. 3. Financial reporting Financial reports present the picture of the financial standing and the financial results achieved by an economic entity. In this country, the annual settlement for small and large companies includes: balance sheet; income statement;  cash flow report; report on capital turns; notes accompanying financial reports; statistical annex Š12Ë. A general structure of the report for the needs of financial analysis is presented as follows: 1. Revenues from sales; 2. Correction (change) in the value of stocks; 3. Other incomes; 4. Expenditure of direct materials and goods; 5. Gross margin/Profits I 1±2+ 4; 6. Other business expenditures; 7. Earnings before interest, taxes, depreciation and amortization (EBITDA *Profits II) 56 8. Depreciation and amortization; 9. Earnings before interest and taxes (EBIT *Profits III) 78 10. Financial revenues 11. Financial expenditures 12. Non-operating/special revenues 13. Non-operating/special expenses 14. Non-operating and other results 9 + 10 11 + 12 13 15. Earnings before tax (EBT) 13 14 16. Allignments of accounting profits against nation al tax regulations 15±16 17. Taxes (10%) 10% of the amount of position 16 18. Earnings after tax (EAT) 16 17 Earnings before tax are viewed as accounting profits from which income tax is paid, however, it is necessary that they be corrected in accordance with the Law on income taxes, after which they become a valid basis for income tax calculation. To establish a taxable income, expenses are acknowledged in the amounts defined in the income statement, in accordance with the MRS and the regulations in the area of accounting, with the exception of expenses for which the law provides another method of regulation Š5Ë. Dividends or earnings are paid out of the net profits, while one portion is retained in the company as retained earnings. The report on the overall results for applying the total expence method is to disclose the following positions: Earnings and expences from current activities; Earnings and expenses affecting capital directly up on creation; Overall results over the given period; Profits pertaining to majority owners; Profits pertaining to minority owners; Earnings per share; Other important information. The manager has to pay attention to cash flow as much as to profits. Namely, profits are not equal to cash flow, that is, the facts that the company earns profits does not ensure that the cash flow within it will be enough to maintain solvency. The report on cash flows is a financial report that shows where the cash comes from (cash inflows) and how it is employed (cash outflows) for a given period, as well as what the cash balance turn was during the period the net cash flow. It is the major source of information used in operational decision making concerning cash flow management, financial solvency control, as well as in interpreting the discrepancies between the financial results and the changes in cash amounts. The analysis of financial reports is primarily focused upon the data presented in external reports, including additional ones. The task of the analysis is to identify the major turns or key points in trends, amounts and relations between financial reports which are predominantly a sum of detailed financial information. The analysis of financial reports is an evaluation method determined by the companys past, current and projected performance. The company management decides: Which accounting methods will be implemented; Which information will be presented in the notes following financial reports; Which accounting assessments will be conducted; Which events or transactions will be acknowl edged; Other important information. The quantity and quality of notes are part of managerial decisions of the company concerning: The events they chose to present as important; The number of notes that will be presented in a balance position as regards the MRS/MSFI requirements, i.e., to which extent the report will go in view of details; Conditioned liabilities (contracted or future liabili ties); Financial forecasts Management Discussion and Analysis. The implementation of international standards of financial reporting improves the quality and comparability of financial reports; hence it promotes the consistency and reliability in financial reporting and makes it easier for the companies to raise capital at international market. The IFRS (IAS) standards Š7ËŠ8Ë present a global model of financial reports standardization. They serve to co ordinate different accounting aproaches, methods and notes in order to bring into accord the current accounting practice and the requirements of the global financial market, as well as specificalities in national legislatures, especially in the domain of tax systems harmonization, in the function ensuring the preconditions for the positive flow of economic development. The accounting policies are tools for business policy execution. The selected accounting policies affect the balance sheet positions and, accordingly, the quality of financial reports and they are harmonized with the International Financial Reporting Standards (IFRS). It is necessary that, once adopted, the accounting policy be implemented consistently, and any deviations in the sense of change be tolerated in cases stipulated by law or by the body that administers the accounting standards, as well as in case the change would result in a more realictic presentation of positions. The companies that provide a detailed accounting disclosure tend to be larger, have a higher growth potential and use more loaned than own capital to finance their business operations. Detailed accounting disclosures can also reduce any uncertainty related to the accounting practices of the companies and financial decision making, and thus facilitate the expansion of companies and improve their growth potential. The function of accounting disclosure is to reduce the overall risk of the companies and consequently make it easier for them to raise the required capital in exchange markets which trade in shares and debt securities. 4. Financial ratio analysis as management technique The analysis of financial information or the financial analysis means an analytical interpretation of available information contained primarily in the company bal ance sheet and income statement, as well as in specially created reports on financial flows. This information allows for an insight into the current financial position of the company. The insight into the financial position of the company is in turn the basis for making a host of different decisions, e.g., the decision on granting a loan to the company whose financial standing is analysed and assessed, aproval of issuing of securities of the companies, a possible need of the company to extend its business activities and engagement of additional funds from available sources, etc. The ratio analysis is based on the study of various relations between logically related balance sheet items, including other information Š9Ë. The title ratio is an English word and means relation, therefore the ratio figures in the financial analysis show a relationship between two functionally related balance sheet positions. The basic purpose of ratio figures is to ensure the assessment of the company financial standing, as well as the trend towards the change in the financial standing of the company. The ratio analysis is based on the DuPont model (Du Pont Model, devised by F. Donaldson Brown) Illustration no.1. This model is actually the most frequently used model to illustrate the relations between profitability factors and ovaerall investments. The required financial information may be presented in a number of forms, however, it includes the usual comparisons such as: comparisons of the same item for the company over a period of several years, comparison of the most important relationships within the same year, or comparisons of several companies that do business in the same industry (those that are comparable). The review of the ratio is presented in the following illustration: Factor Account Property turnover Profitability Interest rate burden Leverage Efficiency in taxing Name of ratio Solvency/Liquidity Net working capital Current solvency ratio Quick solvency ratio Cash ratio Cash burden rate Earnings/average property Earnings before interest and taxes/earnings Earnings before interest and taxes Expenses from interest/short -term liabilities Average income/average capital Tax expenses (Earnings before taxes Expenses from interest) Definition Current assets Short-term liabilities Current assets/Short -term liabilities Cash+Marketable securities+receivables/Short -term liabilities Cash/Short-term liabilities Current assets/Average daily operations expenses Factor Account Solvency Indebtedness ratio Debt-capital relation ratio Earnings on interest ratio (number of times) Cash coverage ratio Free cash flow Profitability Gross profit margins Profit margins Returns on total assets Returns on capital Aggregate liabilities/Aggregate assets Aggregate liabilities/Equity capital Earnings before interest and taxes/Expenses from interest Earnings before interest, taxes and amortization (depreciation)/Interests Cash dividends Gross profits/Net income Net profits/N et earnings Net profits/Average total assets Earnings available to owners of common stocks/Average equity capital* *(Equity capital at the beginning of reporting period+Equity capital at the end of the reporting period)/2 Market value Earnings per share Cost and earning ratio Market added value Divident returns on shares Dividend payment ratio Turnover of property Liability turnover Average period Stocks turnover Average age of stocks Total assets turnover Business risk Operational earnings variant coefficient Sales volatility coefficient Operational leverage level (Net profit Preferential dividends)/ Declared common shares ** **Weighted average number of common shares Market price per share/Earnings per share Market price of firms shares Own capital distributed by shareholders Dividends per share/Market price per share Dividends on common shares/Net profit Preferential dividends Net sales on credit/Average receivables from customers* *(Receivables at the beginning of reporting period+Receivables at the end of reporting period)/2 365 days/Receivables turnover Net sales/Average stocks** **Stocks at the beginning of reporting period+ Stocks at the end of reporting period/2 365 days/Stocks turnover Net earnings/Average total assets*** ***(Total assets at the beginning of reporting period+Total assets at the end of reporting period)/2 Standard deviation of earnings before interest and taxes/average earnings before interest and taxes Standard deviation of sales/Average sales Percentage of chan ge in earnings before interest and taxes/Percentage of sales The analysis of financial reports allows for reading financial reports to a large group of users. Financial reports are of primary importance for managerial assessment of the company results. Forecasting the sustainable growth of the company; forecasting the future values and growth of earnings; Turnover forecasting. The Ratio analysis is useful in: Evaluation of performance; Environment analysis; Disclosure of the relation between activities and performance; Benchmarking with the companys previous period Benchmarking with the industry (average, leader in the branch) Implementation of Altman Z-score test to test a likelihood of the company bankruptcy; Often implemented in the procedure of financial analysis are the ratio figures with the model known as Altman Z-score test, developed in 1968 by Edward Altman for bancruptcy predictability. The obtained results of this test are compared to the already set standards and assess the condition the company is at the moment. The Altman Z-score test, however, has certain weaknesses in that it cannot abstract accounting errors, and also in that it neglects the cash flow indicators, since the fact that profitiability flows and cash flows do not always coincide should not be neglected. This test should be implemented as a supplement to the financial analysis and interpreted with ultimate caution. Another model that can be used in success or failure assessment is the Arghentie model of failure forcast. In Croatia, a BEX index is used as the business success indicator Š13Ë. 5. Quality of financial information and restraints in the ratio analysis implementation Financial reporting contributes to raising transparency of the capital market processes, of investors interests protection, and to raising the safety level in the decision-making process. Š10Ë Š11Ë. As such, it plays a highly important role in the processes of mitigating information assymetry and maintenance of the financial system stability. On the other hand, the complexity of business transactions, the need for the presence of accounting options, an unethical conduct of of the participants in the reporting process etc., result in information in financial reporting often being far from economic reality. The possible consequences of such reporting for the company, investors, financial markets and the accounting profession require that these issues be paid utmost attention both at the institutional level, in terms of supplying a desired quality, and on the level of finding a means for as reliable analysis of the quality of individual financial reports as possible. The assessment of the quality of financial reports requires the ability to identify information risks and this entails a broad range of accounting knowledge, the knowledge of specific features of different industries, groups, branches and individual companies, identification of business situations suitable for creative reporting as well as high analytical capability that even exceedes the requirements of the standard traditional analysis of financial reports. The credibility of reported facts is of great importance for both internal and external users of financial reports. The implementation of international financial reporting standards improves the quality and comparability of financial reports; hence it promotes consistency and reliability in financial reporting and makes it easier for companies to raise capital on an international level. An important factor in improving the credibility of accounting information in financial reports is auditing. Auditing is a procedure of independent control of financial reports concerning one business entity profit oriented, to form an opinion on it. Once there were the Big Five, i.e., five auditing firms, and among the most successful was the Arthur Andersen firm. The firm was most highly reputed among the big five, nevertheless, its reputation was damaged by the well known affair concerning the world energy supply giant Enron whose accounting, i.e., auditing was entrusted to the Arthur Andersen firm. While Enron was recording a fall in profits of 75% in 1997, the accounting reports drew a highly favourable picture of the company Š3ËŠ6Ë. The enormous losses Enron suffered were presented in illegible footnotes hardly anybody noticed. The fall of Enron resulted into the fall of the Arthur Andersen auditing firm too, because they lost the licence to practice auditing on permanent basis and had to pay enormous fines for having verified false accounts and covered up evidence. The affair with Enron simply damaged the reputation of corporate America and it logically resulted in a new law Sarabanes Oxley Act, as promptly as 2002. In the companies that are not subject to auditing, the quality of accounting information will depend on the management responsibility and the professional responsibility of the employees in the accounting department in charge of business bookkeeping and creating annual reports. The restraints in the implementation of the financial ratio analysis: Industry of the company is often difficult to identi fy; Accounting practices differ from one company to another, which may distort the value of the ratio; Deviations in the ratios in certain cases are difficult to define; Industry ratios may not be the desired targets; Published processes of industries are only guide lines, i.e., they are approximative in character; Seasonal effects on ratios; Incompleteness of ratios. In addition to the above listed, restrains are the following: (cid:123) Numerous large corporations maintain manifold business relations, hence it is difficult to identify the industry group the firm belongs to. A comparison of the ratio with the ratio values of other corporations may prove negligible; (cid:123) Financial reports are characterised by the implementation of historical costs where the effects of inflation are neglected; (cid:123) Ratios are static and they do not take into consideration the future trends, hence the assessment of the financial standing on the balance day and of the success in a given year can be useful only for conclusions concerning that particular period. (cid:123) Managers can sometimes exaggerate in presenting their financial figures, etc. the aspect of performance measuring of the company management is very important, because it is their performance that conditions the price of their shares. The ratios of the companies financial standing are widely used throughout the world, especially in the countries characterised by a developed market economy. Conclusion The trust in financial reports includes, among other things, educated accountants, standardized bases, harmonized principles, transparent and reliable data in financial reporting. The international standards of financial reporting allow for a higher safety of the investor in view of the capital flow on the global level. The implementation of international accounting standards from Specially important in an adequate assessment of financial and earning position of companies is the skill of financial analysts in interpreting the obtained figures results. They are required (expected) to be well acquainted with the industry-specific conditions, as well as with any important characteristics of the business of the observed company. Figures themselves do not tell much. The techniques of analysis are various due to various users, their different levels of knowledge, the variety of information necessary for decision making as well as due to the general nature of financial reports. Financial reports are highly important for the managerial communication of results of the company to investors, creditors and analysts. The financial analysis allows for reports to be read by a large group of users for the purpose of assessment of the business of a certain company, as well as making various types of business decisions. REFERENCE Š1Ë Hopper, T., Northcott, D., Scapens, R.B.,1997. Issues in Management Accounting, Prentice Hall, London. Š2Ë Shim, K. J., Siegel, J., 2007. Financial al Management, Third Edition, McGraw Hill, London Š3Ë Ketz, J.E 2007. Hidden Financial Risk: undestand ing off balance sheet Accounting, John Wiley & Sons, Inc., New Yersey. Š4Ë Callahan, R. K., Stetz, S. G., Brooks, M.L., 2007: Project Management Accounting Budgeting, Tracking, and Reporting Costs and Profitabiliy, John Wiley & Sons, Inc., New Yersey. Š5Ë Zakon o porezu na dobit (Sl. glasnik RS, br. 25/2001, 80/2002, 43/2003 i 84/2004) Š6Ë www. Big4.com Š7Ë http://www.sec.gov/news/studies/2009/sox 404_study.pdf Š8Ë http://www.fasb.org/home - Financial Accounting Standard Board Š9Ë http://www.readyratios.com/?gclid=CIzVs_X3 qwCFcnwzAodzFiBXg Š10Ë http://www.ucp.org/uploads/media_items/ucp-au dited-financial-statements-10.original.pdf Š11Ë http://finance.hartford.gov/Shared%20Docum ents/Hartford,%20City%20ofGASB%20Financials-6-30-102%20final.pdf Š12Ë http://www.apr.gov.rs/ Š13Ë http://portal.wlw.hr/Default.aspx?sid=357 Analysis of Existing Housing Fund and Current Housing Construction With Focus on Real Estate Market in Montenegro UDC: 332.812(497.16) ; 005.52:005.33 Jasmina ]etković1, Snežana Rutešić1, Miloš Knežević1 1Faculty of Economics in Podgorica jasmina¿ac.me Although in Montenegro the right to having a flat is not defined by the Constitution, Montenegro, as a signatory of certain international agreements and conventions, is committed to approach this issue in accordance with undertaken obligations, with appreciation of all specificities caused by the historical legacy in this area and relatively limited opportunities which are consequences of the social system size. Housing policy is a complex problem, which imposes the need for a multidisciplinary approach to define priorities and measures to consolidate the instruments for achieving positive results in this area. National housing strategy should define the vision and the directions of activities in Montenegro in this area. 1. Introduction Housing construction in Montenegro can certainly count on certain internal resources, such as all kinds of favorable conditions for intensification and improvement of housing construction in the following period, which were used in previous period to a greater or lower extent. The significant housing construction potential includes: indisputable housing need, especially of young population and certain target groups; undisputed relevant spatial resources; development of partnership between public and private sector; existence of certain interest of strategic partners from the country and abroad for housing construction; the need to adjust to the European standards, especially in view of the energy efficiency of the buildings, the effect of construction production on employment and consumption of certain material goods. Among the main problems, limits and obstacles to housing construction in Montenegro, we recommend the following: deficiency of spatial planning documents; high costs of building land development; sensible deficiency of investment capital; long procedures and difficulties for resolving property issues; insufficient and low quality infrastructure; decrease of real estate market for living; low purchasing power of population; large number of unfinished flats and long period of construction. This document gives an overview of the existing housing fund in Montenegro and its basic characteristics based on the published results of the census of flats and households, which was published in 2003, considering the fact that data of the recently finished census, which was published in April 2011, are not available yet. Below is shown the current housing construction, as well as major participants in this process. In addition, movement of the real estate market in Montenegro is analyzed. 2. Status of existing housing fund in Montenegro The housing fund in Montenegro contains flats for permanent living, but also other housing units such as flats used for vacation and leisure, for performers of part time jobs in agriculture during the season, for exclusively commercial activities, as well as other occupied premises. According to the 2003 census, the housing fund of Montenegro is valued in amount of 253,135 of house units of which 55.3 % is in urban zone and 44.7% in other settlements. In ownership of private individuals were around 98% of flats for permanent living. According to the preliminary results of the 2011census, the number of flats was increased to 316.083, i.e. for around 63.000 house units or for 25% compared to the 2003 census. Based on same results, there are more than 505 flats per 1000 inhabitants (including vacation houses and other flats, which are not used for permanent living). In comparison to the census from 2003, there is a slightly increasing of flat share in urban zones, 56,36%. According to data of 2003, Montenegro disposed with 206,153 flats for permanent living (total area of 13,606,734 m2). In the structure of flats for permanent living by census from 2003 the largest part were two bedroom and three bedroom flats (Table 1), and average number of rooms by flat is 2.65. According to same source, about 20% of flats are older than 50 years, and around 39% was built after 1980. Of the total number of flats for permanent living, around 93% are flats in buildings from solid materials. By percentage the most frequent are flats with sq. of 51-60 m2 , 15.62%, while there are equally presented flats with 3140 m2, 41-50 m2, 61-70 m2, 81-100 m2, i.e. 12 up to 13%. The average area of a flat is around 66 m2, and the average area of a flat for one person is about 22 m2, which is slightly lower compared to the average for the EU members from the Eastern bloc, while for other EU countries this ratio is 30- 40 m2 Š1Ë. In relation to equipment installation, about 88% of flats have plumbing installations, about 99% have electrical installations, bathroom is part of around 82% residential flats, and toilet is in more than 76%. Connected to public water supply are around 67% flats, while public sewerage is available to around 39% flats for permanent living; central-floor heating is present in around 3.7% flats, and no installations are characteristic of around 1% flats. Structure of flats Number of flats special rooms studio and 1- room 2 rooms 3 rooms 4 rooms 5 and more rooms flats of unknown structure TOTAL 2,570 37,421 62,077 60,753 29,079 14,228 206,153 Table 1. Structure of flats for permanent living based on the census 2003 According to the 2003 census, the number of 37,160 of flats are registered for vacation and leisure, of the total area of 1,977,028 m2, of which the largest number are flats in vacation houses (Table 2). Structure of flats for vacation and Number of relax Flats in weekend houses Flats in family houses Flats in other buildings TOTAL flats 25,811 5,.724 5,625 37,160 Table 2. Structure of flats for vacation and leisure Comparing the population with the number of house units in the previous period, we conclude that in 1991 the ratio of population and house units was 3.6 resident/house unit, and in 2003 this ratio was 2.4 resident/house unit, which indicates the improvement of the housing situation and an increase in the number of house units in that period. According to the data from Monstat, Montenegro disposed, closing with 2009 of the house fund of around 228,000 flats, which means that the number of flats was significantly higher than the number of households in the same year (around 183,000), i.e. on 1,000 of population there were around 350 flats (average of EU is 430 flats). This figure does not include vacation houses and presents the sum of flats for permanent living by the 2003 census and the number of flats for permanent living obtained from Monstat yearly research (for 2004, 2005, 2006, 2007, 2008 and 2009). However, despite the data that Montenegro has more housing units than the total number of households, all the population structure has a need to solve the housing problem. The demand for flats for lease is high in the entire area of Montenegro, and especially in the developed areas of Montenegro (Podgorica and coast). It is also significant in underdeveloped areas, because of a deficient or insufficient offer. According to public data from the Montenegrian agency for real estate for 2010, 1,964 of citizens of Montenegro had in their ownership more than five flats per citizen. The number of citizens who have two flats is 44,744, three flats 13,120, 4,976 have four flats, and 1,795 have five flats. Also, based on the same source in Montenegro the number of total housing units is 243,397 the area of 14.55 mil m2. The data mentioned above refer to floor units of buildings, which are in cadastre of real estate registered as housing space, but it is estimated that their number is higher than specified by 10 to 20% because there are no real estate cadastres on the whole territory of Montenegro. From the taxes on property income and property rights, ¡ 2,156,489 was charged in 2010. Of these, legal entities paid ¡2.08 mil and individuals paid ¡70,438. The government has recently announced a plan to increase the collection of taxes based on the income from property and property rights, i.e. rental of flats and business premises, regarding a relatively small amount of charged taxes in 2010 (compared to the number of flats and business premises). According to the data on the number and area of constructed flats in the period from 1999 to 2009 (Table 3) the total number of constructed flats is 32,604, with a total area of 2,245,000 m2. In the total structure of flats, dominant are two bedroom and three bedroom flats. It is obvious that an intensive growth in the previous period has significantly intensified the housing construction, so the number of less than 2,000 newly built flats in 2003 increased to 3,400 units in 2007, i.e. to over 5,800 units in 2009. From previous presented table it is obvious that intensive growth in previous period has significantly intensified housing construction. The number of less then 2.000 new built flats in 2003 is increased on around 3.400 units in 2007, i.e. on over 5.800 units in 2009 (which is by 3,800 units more than in 2003). By comparing the number of built flats with the estimated number of inhabitants Š2Ë, we conclude that in 2007 there were was 5.5 built flats per 1,000 inhabitants, i.e. 9.2 built flats in 2009. We would like to emphasize that Monstat still does not have data on the number of flats for permanent living for 2010 so this year is not included in the total data. 3. Managing and maintainance of housing fund By selling the social housing fund, in the nineties of the last century, Montenegro started its privatization and reduced the public housing fund to a minimum. The expected financial effects of privatization of housing fund, due to low formed purchase prices, are almost completely absent, which prevent the rapid consolidation of the state and the transition to a new housing policy. The general statement is that the state of the housing fund is not satisfactory. The purchase of flats and changes in the legislation, the obligation to maintain the housing fund is within the exclusive jurisdiction of the condominium ownership, which are quite inert in this issue. Table 3. Number and area (in 000 m2) of built flats in Montenegro (1999 -2009.) According to information collected from municipalities for the needs of this Strategy, in the register of owners of residential buildings and managers of buildings in 2010 there are (in 10 municipalities which provide data from the registers) 1,461 residential buildings and 1,295 registered managers, among whom there is a certain number of temporary (compulsory) managers. For a large number of buildings there are no named manage ment bodies in accordance with the law, because this number of registered managers includes the managers of entrance. Examples of the municipalities are diverse. In order to improve the quality of the housing fund, the Minicipality of Podgorica has founded the Agency for housing d.o.o. Podgorica, which deals with mainte nance of residential buildings. The main objective of the foundation of the Agency was the realization of a project for improving the living conditions in residential buildings. The project is designed to improve housing conditions so that 50% of the estimated value on works on maintenance of common areas of buildings is provided by capital budget, while the flat owners provide the remaining 50%. All the previous year the problem was the lack of interest of flat owners, so every year significantly less work was realized than possible with the financial assets provided by budget of Municipality of Podgorica and the technical capacity of the Agency for living. Thus in 2006, ¡233,180 was allocated for these purposes, only ¡30,339 ¡ was realized, while in 2010, ¡350,000 was planned and ¡196.400 was realised, which is only 56% of the planned assets. 4. Current housing construction in Montenegro and major participants in it According to the data from Monstat (Table 4), the share of the value of construction of residential buildings in relation to total value of construction work, in the period from 2005 to 2009 ranged from 33% to 50%. In the period of record value of construction works (2008), the share of residential construction was about 45%. After that year there is a decrease in the total value of construction works, but also the increase in the share of work values on residential buildings. Regarding this, the construction activity and therefore the housing construction, significant recovery is ahead. The value of finished construction works in the IV quarter of 2010 is higher by 60,7% in relation to the same quarter in the last year, while it is higher by 51,3% in relation to the III quarter for same year (Graph 1). Year TOTAL Residential buildings Non residential buildings Other buidlings *  130,104 100% 259,880 100% 285,345 100% 412,352 100% 362,430 100% 64,222 49,36% 85,175 32,77% 119.553 41,90% 183,242 44,44% 184,028 50.78% 20,996 16,14% 110,732 42,61% 97,351 34,12% 85,186 20,66% 58,418 16.12% 44,886 34,50% 63,973 24,62% 68,441 23,99% 143,924 34,90% 119,984 33.11% * transport infrastructure, pipelines, communication and electric lines, complex industrial constructions and other Table 4. Value of construction works in thousand ¡ Š3Ë The value of the new contracts on buildings in the IV quarter of 2010 is higher by 168,4% in relation to the same quarter last year, while it is higher by 295,6% in relation to the III quarter of the same year. Index of value of finished construction works 2009 = 100 Index of new contracts on buildings 2009 = 100 Graph 2. Index of new contracts on buildings in IV quarter in 2010. (2009 = 100) Š5Ë According to the data from Monstat on the housing construction (Table 5), it can be concluded that there is a constant growth trend of finished flats from 2114 flats in 2005 to 5,825 flats in 2009, which represents a total increase by around 175%. This trend is reflected in the Graph 1. Index of value of finished construction works in IV quarter in 2010 ( 2009 = 100) Š4Ë growth of total built area of flats with an almost proportional growth and average area of flats. Based on the data, it should be emphasized that 30% flats were in residential buildings, while 70% flats were in private houses (except in years of intensive construction activities in 2008 when the share of flats in residential buildings was slightly smaller. about 20%). These can be the consequences of large inflows of foreign direct investments in the real estate market, when the foreign citizens have directed the priority of investment on flats in private houses. The ratio of the number of flats in residential buildings to private houses in EU ranges from 35% in Denmark to 75% in Lithuania, while for the most countries of EU this ratio is around 50% Š1Ë. From Monstat data for 2009 it can be concluded that from the newly built 1,637 flats in residential buildings, only 962 flats are sold, i.e. around 60%. In the same period the number of unfinished flats grew from 11,570 flats in 2005 to 15,135 unfinished flats in 2009 (Table 5). From the ratio of number of unfinished to finished flats, it can be seen that there is a trend of decrease in this ratio from 5,47 in 2005 to 2,6 in 2010. From the mentioned table we can also notice that the dominant numbers of unfinished flats are in private buildings (12,688, i.e. around 84%). It is most likely that the predominant number of this flats, though unfinished, is occupied, because the owners did not have the resources to finish them. Unfinished flats in residential buildings (2,447, i.e. around 16%), probably are not finished, because the contractors did not have sufficient funds to finish them, regarding the fact that the sales of flats in 2009 were reduced because of economic crisis. The major participants in the process of housing construction are: investors, architect and construction companies contractors. Besides these participants in the process of housing construction there are also: banks, financial institutions, authorities which in the process provide legal procedure, consultants, etc. Investors in housing construction may be both legal entities and private individuals. Legal entities are very often both investors and contractors, i.e. construction company that builds flats for market. The financing of their activity in the field of housing construction is based on equity investments (company and/or buyers), credit and/or mortgage debt and partly on public-private partnership (when the municipalities or the state participate in the project with the land and exemption from payment of fees for utility equipment). Despite the initial development of credit markets in the period since 2005, the economic crisis has significantly slowed the development and imposed numerous obligations and insurance to borrowers, which resulted in the increase of problems for investors in the closure of the financial constructions and their turning to advance payment from flat buyers. In terms of the effects of financial crises, investors-contractors are faced with the liquidity problem in the absence of bank support for the realization of the launched projects and regarding this, with the problem of blocked assets in unfinished buildings, which ultimately resulted in decreasing of prices of newly built flats. NUMBER OF FINISHED FLATS YEAR TOTAL Flats in residential buildings Flats in private houses TOTAL Flats in residential buildings Flats in private houses 2.679 1.930 2.114 1.500 3.448 2.453 AREA OF FINISHED FLATS, in thous. m 2 NUMBER OF UNFINISHED FLATS TOTAL Flats in residential buildings Flats in private houses 13.344 1.673 11.671 AREA OF UNFINISHED FLATS, in thous. m 2 11.932 1.515 10.417 11.570 2.063 9.507 TOTAL Flats in residential buildings Flats in private houses 1.006 Table 5. Housing construction Š3Ë 4.650 3.773 15.688 2.409 13.279 1.196 1.038 5.825 1.637 4.188 15.135 2.447 12.688 1.191 1.015 According to the Law on Spatial Planning and Constructions (Official paper CG 51/08), specially treated are family residential buildings (buildings intended for residential areas to 500 m2 and a maximum of four separate residential units) whose construction was exempted from review of technical documentation and supervision obligations, and the conditions which have to be obliged by the responsible architect in this case are lower (bachelors degree instead of specialist degree), which all contribute to lower costs of construction. Investors in these buildings are usually individuals who financed the construction from their own savings and/or mortgage loans. Information about holders of construction activities contains the number of subjects, number of employees, income as well as amount of gains or losses. In the research which was conducted for the needs of preparation of the Strategy of construction development in Montenegro until 2020, based on available data from the Central Registry of the Commercial Court, the Fund for Pension and Disability insurance and Tax Administration, a database was created on commercial entities working in operatives-contractors, in production and/or trading of building materials and planning. According to these data, at the end of 2008 there were registered 2,632 subjects in construction activities, which deal with the building, their concentration was highest in the southern region, then in the middle, and the lowest was in the northern region of Montenegro. However, this number does not represent a real view of the situation in the areas, because only about 50% of the subjects were considered as active subjects in the conducted research. The data on the number of companies can give a wrong image of the real situation, because there is a large number of parts of foreign companies or companies whose founders or cofounders are foreign legal entities and private individuals founded in order of achieving the right on properties or achieving the easier payment operations between Montenegro and surrounding countries. According to the available data from 2010 Š6Ë the total number of registered legal entities that have construction activity as a predominant activity is 3,134 (under the code of activity 45). It can be said that the identified characteristics of construction in Montenegro are also valid for the part regarding participants, contractors in housing construction Š7Ë: there are no large companies which are holders of development, only a small number of medium enterprises, and the rest are small enterprises, a small number of employees in companies with greater participation of non-resident labor,  large short-term obligations which are on the level of constant property which is probably a guarantor for these loans, presence of large stocks in company business, lack of resources in companies, lack of available financial assets, no satisfactory level of mechanic equipment in most companies - outdated equipment and machinery, bad and inefficient organization, reduced productivity lack of quality staff insufficient number of qualified and highly professional staff, Difficulty in obtaining bank guarantees. The construction activity of companies that operate in Montenegro, can also be illustrated by the average number of employees in the construction activities and finished effective hours of employees (Table 6). Number of employees on construction place at the end of report quarter number of employees 2.343 3.525 3.522 4.200 3.665 6.783 Index 63,9 96,2 96,1 114,6 100,0 185,1 Year Finished effective hours in 000 hours 5,345 8,424 8,280 9,994 8,071 8,061 Index 66.2 104.4 102.6 123.8 100.0 99.9 Table 6. Number of employees and finished effective hours Š8Ë The table shows that since 2005 to 2008 there is a trend of growth in the employees number and in the growth of effective working hours with the concurrent growth of productivity, while in 2009 there is decrease in productivity, which intensively continues in 2010. 5. Analyses of movement on real estate market in Montenegro The real estate market in Montenegro has always been very attractive. Even at the time of the SFRY, the real estate business on the Montenegrin coast was a very attractive source of income for many individuals and public companies at the time. The first buyers of real estate in Montenegro, at that time, were mostly from the former Yugoslavian republics (Serbia, Bosnia and Herzegovina, Macedonia). Towards the end of the seventies and eighties, the mass purchase and construction of real estate in Montenegro was commenced by the citizens who have lived in Western Europe countries or in other republics of former Yugoslavia. In addition, this group includes buyers who have worked and lived abroad (Germany, Switzerland, Austria and USA). In the early nineties of the last century first foreign investors and buyers of real estate came to Montenegro. The market began to develop very quickly, but wartime events, which took place in the former Yugoslavian, influenced the slowdown of the process. However, despite this, the real estate market was nevertheless constantly developing, because the number of domestic buyers was not reduced, nor was the number of buyers who were citizens of or born in Montenegro and lived abroad. Towards the end of the nineties and at the beginning of the new century, the first interested buyers from abroad began arriving (Russians, British, Irish, Norwegians). At the end of 2001 began what we call the explosionof real estate market in Montenegro. In the period from 2004 to 2005, many foreign agencies, mostly from England and Ireland, started to work on the territory of Montenegro. Foreign companies started a significant number of investments on the system ready to rent, especially in the cities on the coast. Along with the increase in the buyers interest, starts the increase in prices. During this period the average price of newly built flats in Montenegro amounted to 639 ¡/m2 (2004), i.e. 813 ¡/m2 (2005). In the following period, the housing market in Montenegro was developing very dynamically, reaching its heyday in 2008. Movements on this market were particularly intense in Podgorica and the coastal region. The reasons for the increase in real estate prices in the period of 2005-2007 were a large foreign demand, household income growth with the growth of housing approved loans, the decrease in interest rates and the growth of capital markets Š9Ë. According to official statistics, the average price of newly built flats in Montenegro in 2008 rose by more than 40% in just two years amounting to 1,530 ¡/m2 (in 2006 it amounted to 1,087 ¡/m2) Š5Ë. According to the analysis of the CBCG, the average square meter of living space in May 2008 in Podgorica was 1,738,3 ¡/m2 Š3Ë. According to the same analysis, the average price per square meter of living space in Budva amounted to 3,036 ¡. The coefficient of availability of real estates, which measures the ratio of the average price per square meter and the average net wage in Montenegro was in 2008, for Podgorica, 4.09 and for Budva it was 7.61. the presented data point to the high cost of real estate in Montenegro at the time, and the relative unavailability of housing objects to employee population. The interest rate (nominal and effective active) on loans in the period in 2003 -2008 significantly declined, which contributed to the growth of approving of housing loans. Thus, from January 2005 until June of 2008, it declined by 42.9% (from 13.8% to 9.23%). With the decrease in effective interest rates at the same time increased the number of approved mortgage loans and their share in the total household loans to individuals. Namely, since the third quarter of 2005 until the second quarter of 2008, the housing loans increased by 36.7 times, while in the same period, the total loans to individuals increased by 10.62 times. Thus, the share of housing loans in the total loans approved to individuals increased from 7.25 % to 25.02% in the second quarter of 2008, i.e. from 13.36% to 41.46%, if under the item housing loans we refer also to the mortgage loans. Š9Ë Along with the development of the banking sector and the real estate market in this period there was a significant development of capital markets (as a significant factor of real estate development). The turnover on the capital market in 2007 compared to 2005 was 3.5 times higher. Money from the sale of the property was invested in the purchase of securities on the capital market, so that the achieved high yields can be used as a good finance basis for the purchase or resale of new properties. In the first half of 2008, there was a significant decrease in investment in the capital market, which had an impact on the real estate market and prices. In the last two years, with the global financial crisis, the real estate market in Montenegro has experienced a fall in terms of the scope of realization and the level of selling prices. However, it is obvious that most expected decrease in real estate prices missed. Now, it is difficult to assess the level of the real estate market in Montenegro, because according to all sources of information, transactions are significantly reduced. This kind of information and orientation can be provided by CEBs project 1.000+ flats launched at the end of the 2010 with the offer of affordable flats by the average prices below 1,000 ¡/m2. According to recent data from Monstat, 2009 was characterised by buying and selling of 962 flats with a total useful area of 56,100 m2, and an average price of 1250 ¡/m2 Š10Ë. According to the same source, in the first half of the 2010 , 529 flats were sold with a total useful area of around 31,000 m2, at average prices of 1200 ¡/m2. In both cases, the highest price of housing spaces was in Bar and Budva (1400-1500 ¡/m2). These data indicate a significant decline in prices of newly built flats compared to the previous period. (Table 7). Year Montenegro Podgorica Bar Budva Nikšić Other - 1,087 1,377 - 2,082 1,332 1,072 1,486 1,527 2,769 1,530 1,355 1,188 2,165 1,003 2,806 1,250 1,168 1,516 1,334 1,537 Table 7. Prices of newly built flats Š3Ë The coefficient of availability of real estate, as the ratio of the average price per square meter and the average net wage in Montenegro (applied to newly constructed flats), and according to the latest data from 2010 amounts to 2.5 Š10, 11Ë. In relation to data from 2008, the reduction of the ratio is about 56%, which is a result of decrease in flat prices and a slight increase in net wages. A significant fall of the real estate market in Montenegro came, among the other things, because of the absence of mortgage financing from mother banks, which was almost stopped along with financial crisis. The banking sector was very impaired by withdrawing of deposits in the amount of 400 mil ¡ by local clients in the period of severe crisis. In the meantime, the situation has improved in part. Commercial banks have started again with offers of long-term mortgage loans with a repayment period of 15 - 25 years, the interest rates of 10 to 13% and a required minimum of deposit of 20% of the loan amount. According to current laws, there are no special restrictions on the purchase of real estate in Montenegro. Every foreign buyer may become the owner of the property (houses, flats, estates) in Montenegro, in the same way as its nationals. The only difference in the process of purchasing the property between foreign and domestic buyers is in the purchase of land without buildings. In the case of a foreign citizen, he is required to register the company, which becomes the owner of the land as long as a facility is not built on it. After that, the property can be transferred to the individual name, following simple instructions. According to unofficial estimates, foreigners own more than 1,5 mil m2 of real estate in Montenegro (of which most of the coast), which is about 10% of residential property. In addition, more than 20 thousand hectares of land is also owned by foreigners, which is about 1.5% of the territory of Montenegro. The growth rate of real estate sales to non-residents during the period 2004-2008 amounted to 104.4% (2004), 547.16% (2005), 382.05% (2006) and 51.27% (2007). The heyday of real estate purchases by non-residents in Montenegro was recorded in 2007 when the turnover of real estate in Montenegro by non-residents amounted to ¡514,357,000.98, after which starts a reduction in the net inflow of foreign direct investment in real estate. One of the most important factors on the real estate market is the amount of taxes on real estate sales and taxes on real estate ownership. In comparison with the environment, we can conclude that the tax rate on real estate in Montenegro is still liberal (3%), and that is not a limiting factor in the real estate market development. Tax on the real estate in Montenegro is determined by local government, to whom belongs the whole income tax (which is provided with a high degree of fiscal decentralization). The tax rate is proportional and the local government decides the cost of taxes based on the type of real estate, but shall not be less than 0.10%, or higher than 1.00% of the market value of real estate, while there are no special rates for non-residents. Since the real estate market is by its nature very unpredictable, and time series on the movement of the market in Montenegro do not exist, except for statistical monitoring of prices of newly built flats (on semi-annual basis), more accurate projections of future trends in this market cannot be given. According to some unofficial estimates, in the next short-term period there can still be expected a stagnation on the real estate market. In addition, no significant price correction should be expected because of the famous impact of the so-called Histeryzis effects (rigidity in the downward price movement). This is all the more so because the expected price decrease did not occur even after the first and strongest effects of two decisive factors for the market in Montenegro: the decline in demand of residents for real estate and appearance of the global financial crisis. 6. Conclusion The housing fund of Montenegro, by its structure and quality represents, on the one side, a significant economic factor, as immovable property of great value and durability, which through the creation of better conditions of life contributes to the increase in labor productivity and the overall economic development. On the other side, the developed real estate market encourages the construction of flats, improving of the housing fund and thus affects the production and employment. The basic characteristics of the housing fund in Montenegro are mainly privately owned, relatively small average areas (around 66 m2), relatively uniform presence of all sizes of flats and the average age about 30 years. In addition, from the ratio between the number of households and the number of flats it can be seen that the total number of flats per household in creased from 1.4 according to the census from 2003, to 1.6 flats/households according to preliminary data from census from 2011, which to some extent indicates the inconsistent distribution by the certain categories of population. The interest in the real estate market in Montenegro in the past has led to significant investments in the housing construction and stimulating effects on the development of this economic activity through the establishment of many businesses in the construction sector. In order to respond promptly to the increase in demand and achieve higher profit, thanks to high market prices of housing, particularly in attractive areas and locations, there has been an intensive development of construction companies. Unfortunately, this increase in quantity has not been matched to their adequate development, among other things, due to certain limitating environmental factors (lack of trained labor, unavailability of loans for business improvement and investments in fixed assets, a strong impact of grey market, etc.) However, the contemporary housing market is characterized by a significant decrease in demand, which is a consequence of the global economic crisis, which caused the decline in housing prices and aggravated the business of a larger number of small construction companies. Improvement and development of the housing market aims, other than settling the basic housing needs, at creating opportunities for stirring the development of specific forms of tourism. Satisfying both of these goals is impossible without analyzing and defining the strategic directions in the field of the social housing policy, on one side, and strategic directions to improve residential real estate market, on the other. Towards the end of 2010 Montenegro has made steps in this direction creating a comprehensive National housing strategy of Montenegro and Research studies for residential real estate market. The National housing strategy established a vision of the housing sector, which includes a sustainable housing sector, which will, on the developed housing market, al low everyone to get a quality flat appropriate to their own economic power, and for the most endangered to provide an appropriate mechanism for assistance. Also, the Strategy determines the mission of the housing sector which is supposed to be a dynamic, organized, flexible and sustainable system, which will be supported by all participants (governments, local government financial and other institutions, companies) to develop the market and other mechanisms (different housing programs, subsidies, etc) and create opportunities so that households and individuals can satisfy their diverse housing needs Š12Ë. LITERATURA Š1Ë OTB Research Institute for the Built Environment, Housing Statistics in the European Union, Delft University of Technology, 2010. Š2Ë Penev, G: Demographical trends in Montenegro from middle of 20 century and perspective until 2050, Podgorica, 2009. Š4Ë Statistical office of Montenegro Š3Ë Statistical office of Montenegro - Monstat, Statistical yearbook of Montenegro of 2010, Podgorica, 2010. - Monstat, Construction activity in Montenegro in I, II, III and IV quarter of 2010, Podgorica, 2011. Š5Ë Statistical office of Montenegro - Monstat, Construction activity in Montenegro in IV quarter of 2010., Podgorica, 2010. Š6Ë www.crps.me (December, 2010) Š7Ë Ministry for Spatial Planning and Environment Protection, Strategy of construction development in Montenegro until 2020, Podgorica, 2010. Š8Ë Statistical office of Montenegro- Monstat, Monthly statistical overview, January 2011, Podgorica, 2011. Š9Ë Fabris, N.; Kalezić, Z.: Analyses of real estate market, Central Bank of Montenegro, Podgorica, 2008. Š10Ë Statistical office of Montenegro - Monstat, Prices of newly built flats for 2009, Podgorica, 2010. Š11Ë Statistical office of Montenegro - Monstat, Prices of newly built flats in I half of year of 2010, Podgorica, 2010. Š12Ë Ministry of sustainable development and tourism, in Montenegro, strategy National housing Podgorica, 2011. Accounting Information System in Banking Planning and Control UDC: 005.51:336.71 ; 007:336.71]:004 Draginja \urić, Snežana Knežević, Slađana Barjaktarović Rakočević Banca Intesa Faculty of Organizational sciences in Belgrade knezevic.snezana¿fon.bg.ac.rs Modern economic theory looks beyond established, traditional frameworks when describing companies. Companies are defined as the meeting places of many interest groups whose goals are often opposed. The two main groups, focusing on the banking sector, are shareholders who demand high yields and creditors who are primarily guided by the principle of safety and preservation of the deposit. Their interests, goals and motives require from management quick, agile and flexible planning and control of business performance. To adequately manage the financial performance of banks it is important to identify the appropriate system of financial planning and control, and establish an information system developed with a detailed accounting subsystem. There are increasing demands of various stakeholders in the accounting sense of a number of accounting reports and accounting information, as well as their frequency. The accounting information system is the starting point for planning and control the processes in banks. 1. Introduction Modern bank capital management requires various information in real time: (cid:34) capital flow, (cid:34) financial balance (long-term and short-term), (cid:34) busines outcomes, (cid:34) financial performance, and (cid:34) other operational management information Banks need to develop a technique of strategic and operational control of tasks set in accordance with target values. Namely, the control is a function that ensures, on the basis of appropriate analyses and information, that the business of a bank institution be conducted consistent to the plan of the set goals and tasks. The focus in the process of collecting and preparation of leading relevant information is on the integration and coordination of all the sections of the business system of the bank towards achieving the major goals of the overall system of the company. Of predominant role for a quality financial decision making is a system development of accounting as an information centre for the overall banking financial business operations, linking planned tasks with the information system and leading a target-oriented company. Control is not exclusively a registrator, but also a navigator and innovator of the banks activities. As regards their contents, accounting reports, i.e., information are prepared in such a manner that they should serve as basis for decision making. Their users are management and decision-making bodies. The contents of accounting information is functionally dependent on the object it refers to, on the time aspect and on the management body. Namely, information differs in view of what it informs on, and when, how and to whom it is directed. Thus information can be classed as: information as basis for action in performance and as performance control, strategic and operational accounting information for the needs of planning, information as basis for managerial and business decision making on the operations and business of the bank, etc. Š1Ë In modern market business conditions, competitiveness means a fast and efficient response to the market demands, a profitability and solvency projection and, accordingly, making adequate decisions promptly, which is impossible without a modern information technology implementation. The role of information technology is no longer to only create and communicate as much and as high a quality information as possible, but ot improve the managers knowledge of business events through analysis, interpretation and explanation, all in order that strategic competitive advantage of the bank should be achieved. 2. Accounting as information system Every decision can be good only as far as its information basis is good, hence the quality of decisions in bank management depends on the extent to which the basis of decision making can be optimized. Thus information becomes a strategic resource of management. Besides, the information system serves primarily to collect, store and distribute relevant information. In other words, the information system is expected to ensure that right information is always available in the right place and in the right time. An adequate management-information system basically consists of two interrelated components: accounting and reporting Š1Ë Š2Ë Š7Ë. A constant challenge faced by managers, consultants and researchers is how to bring functional activity into accord with discipline and to simultaneously support the corporate strategy. One difficulty in harmonizing strategy and management accounting, including management control and performance measurement, refers not only to the dynamic nature in different strategic contexts but also to dissemination of different aspects of strategy among both academics and practitioners. An optimum information funding needs the bank accounting to be the leading tool. It is especially necessary that the decision makers in the bank have at any time relevant and verified information on the results at their disposal, so that every decision maker should be in a position to make an exact measurement of the consequences of the outcomes of certain decisions. It is for this reason that accounting is expected to enable that the results of the decisions in the company be transparent, to disggreagate the overall success and then reaggregate it according to relevant dimensions. Hence accounting is expected to provide the following information: what are the banks earnings from certain transac tions; how high are interest rates in concrete transactions with clients; which are the costs of banking services, how large are they and and in which way are they incurred; which is the contribution to the company results made by certain types of transactions, client groups or business units; which business structure reveals the profits and risk profiles; which business conditions affect the quality of re sults, etc. The basis of internal accounting oriented towards decision making in operatonal controlling is the preparation of information for budgeting and the comparison of planned and achieved values. Here, the implementation of computer centres and computer software must not be neglected since it is only in this manner that a host of relevant data on business transactions can be processed. Reporting refers to the overall information at the disposal of decision makers in specific intervals either not on call or in case of specific needs. This is accounting information prepared in an appropriate form of tables or graphs. Furthermore, market analyses, interest rate related foracasts and competitive forecasts as well as any other information coming from economic environment are viewed as parts of reports. Illustration 1. Functions in the process of control cycle Due to an abundant and permanent flow of information that decision makers receive, the purpose of reports is not always seen in a general presentation of correct and adequate information on any possible relevant facts, but rather in the sense of limiting information ascesis and avoidance of verbosity. The question therefore is; who needs what information, how highly differentiated and how often? Here, for example, a three-level scheme can be created of the need for the preparation, production and implementation of information. Only a smaller chunk of information necessary to decision makers is at disposal regularly, without prior request. Any other information is released only on concrete request for individual cases, where two cases should be distinguished: information that was already produced and available and information that incur high costs and is accordingly released only in case of concrete demand. Illustration 1 clearly shows a cause-consequence relation between planning and control, whereas the basis of these processes are the activities of forecasting, defining alternatives in accordance with the present problems, consequences, goals to be achieved and potential prospects Š9Ë. On defining the desired course of action the activities are implemented accompanied with a necessary performance analysis by comparison of outcomes and set standards. 3. Planning as management process Planning is one of the most important functions in ensuring continuity in banking. On the basis of available information, their intuition and readiness to take risks, the bank management select the option they deem to be the best among a number of business options. Highly important for the certainty of the future business suc cess is planning as a dynamic innovative part of control, especially related to strategic planning. Strategic planning is a tool implemented to translate potentials into advantages over competition and avoid threats to the bank survival. Such potentials are, for example, building closer relations to clients, openness to clients, image, creativity, broad presence, innovative strengths, etc. The definition of the strategic orientations in the development of the bank has to include the following vital elements: 1. Bank profile definition 2. Analysis of macroeconomic environment 3. Projecting future business activities and identify ing business target results. Strategic goals of the bank can be the following: 1. Stable and long-term profitable business with an adequate protection of capital, on one hand, and the clients and shareholders interests, on the other; 2. Growth of market share through strengthening fi nancial potentials; 3. Strengthening deposit base; 4. Growth of active accounts of both citizens and economy; 5. Growth in credit portfolio; 6. Improving the quality of bank products; 7. Maintaining the business rating; 8. A long-term implementation of the social respon sibility concept. The managers are assumed to formally analyse competitive advantages and provide an appropriate assessment of distribution and resource exploitation as part od their developmental strategy. Formal information systems will ensure such an analysis. The implementation of strategies also assumes a broad analysis of economic, quantitative and qualitative information. Finally, in an effort to achieve a sustainable and competitive advantage, they track the results of the discrete managerial choices and a strategic resource of accumulation and implementation, which depend on the production and implementation of an efficiently designed information management system. Strategy is regarded as organizationally based in the decisionmaking and implementing processes, it is viewed as complex, dynamic and manyfold. Organizational activities are undertaken to shape different interests, including specific strengths of the bank, as well as institutional pressures. 4. Accounting report and planning The strategic planning and positioning concept is only a starting point of a business strategy Š6Ë. In many cases, strategy results from an interaction between the management, the employees, and the environment. Consequently, in certain specific cases, strategies may differ from the strategy originally planned by the management. Accounting planning is a procedure of projection of different types of planning, meant to peerform the following managerial functions: 1. by plan projections the management creates a vi sion of business in the future; 2. plans make basis for outcome evaluation; 3. plans are tools for coordination of activities in order that they be oriented towards the set strategic goals. Planning should include the following segments: 1. income and expenditure planning per bank prod ucts and business segments; 2. expenditure planning according to the type of expenditure on the bank or organizational unit level; 3. planning interest and non-interest income; 4. planning internal prices and interest rates; 5. cash flow planning; 6. planning in domestic currency and in a number of different currencies, and other. An efficient management of the planning and outcome tracking processes requires a powerful information logistics, as well as development of internal models for outcome tracking on the level of the banking group (bank), on the segment level, on the level of bank product clusters, as well as on the level of business segment managers. The implementation of international standards of financial reporting improves the quality and comparability of financial reports, thus promoting consistency and reliability in financial reporting and making it easier for companies to raise capital on an international level. As the basic sources of data for the information on activities and operations, the balance sheet and income statement are not the goal in themselves; they rather serve as an adequate tool in: planning, control, analysis, information, and management. especially if they are presented in a simplified form, concisely and neatly. In case balance sheet and income statement are regarded as related to their projected (planned) balances, the quality of this information is higher. In its projection of profits and financial situation solvency of the bank, financial planning comprises the planned balance sheet and the planned income statement, as well as the cash flow plan. The basic accounting reports (statements) from the past, the balance sheet and income statement make the starting point in the projections of planned balances. Thus they confirm or challenge the justifiability of assumptions on the anticipated future business results and the financial standing of the bank Š10Ë. The extent to which the planned balances will coincide with the future real business results of the bank depends on the level of accuracy of the starting premises adopted. Hence it is necessary that the bank should have as adequate data and information as possible at its disposal, not only on these balances, but on a broader scale, for the purpose of continual improvement of the quality of its premises. As the starting point in management, the planning process serves to define the banks goals and the methods of business execution. Namely, goals and tasks are set to be accomplished in order that the bank should do business efectively and efficiently. In other words, the bank performs the processes of strategic and operational planning. Strategic planning is an organized process of activities which employes the employees, the management team and the board of directors of the bank. Strategic planning should be permanent and objective. The end result is the definition of the banks long-term developmental orientation and goals as well as of periods of short-term implementation and achieving specific goals using a certain technique and tactics that will help the bank achieve its long-term objectives. Operational plans are elaborated strategic plans, precise statements on their realization for the overall aspects of the bank, for all the business functions of the bank incorporated into an integrated business plan, its outcoms being the balance sheet and the planned income statement. Planning is one of the vital functions in ensuring the continuity in the banks business, since in the planning process, among a number of alternatives and on the basis of available information, their intuition and their readiness to take risks, the managers select the alternative they believe will be most successful. The most important and a highly complex task of the management in the process of bank management is creating the strategic plan for managing the capital of the bank and its development. In devising a strategic plan, it is necessary that an assessment of capital, as well as the needs for capital be made, proportional to a specific risk profile of the bank and its capability of risk management. As regards these, it is necessary to take into consideration the following important parametres, as a minimum requirement: profitability; solvency; adequacy of reserves; quality of assets; off-balance risk exposure; concentrations of certain types of risk exposure; operational risk; and efficieny of the bank tracking and control system. The starting point in the process of planning the bank capital, is the analysis of economic environment and a potential income the bank can earn, where most attention is paid to the current capital structure, and especially to the potential of capital generation on an internal level. The anticipation of the need for additional capital makes it easier for the bank management to raise additional capital under favourable conditions, and this is most important and conditioned by the current returns on banks capital. It is very important that the bank should establish an adequate system of monitoring risk exposure, as well as of how a changeable risk profile affects the need for capital. It is in this sense that management accounting is expected to create reports on the bank management risk exposure and submit them to the top management of the bank or to the board of directors. The purpose of these reports is to enable the assessment of the banks future needs for capital, needs based on the identified risk profile, so that the bank can make the necessary corrections in its strategic plan. The bank management sets a new task to the strategically oriented management accounting Š1Ë: to form an adequate procedure for two purposes: (1) permanent tracking and maintenance of the existing capital and (2) assessment of the need for new capital. The analysis of the structure of capital for a number of successive periods can provide varied important information on the bank business operations: information on achieved rise (or fall) in profits; information on the value flow of assets; information on the impact of external factors upon banks business; an applied system of profit distribution; financing policy results, etc. Especially important in the process of bank capital planning is that the bank management decides either in favour of the former option that is a demand for profit maximization, or in favour of the latter option whose priority is the bank survival and growth. A strategic plan for the bank capital should include at least the following data: banks needs for capital; desirable level of capital; external capital sources; anticipated capital investments, etc. The process of planning the bank capital is expected to ensure that the capital structure should be consistent with the nature and the scope of the banks business. Useful for these purposes in defining an adequate level of capital implementing different scenarios and techniques can be the findings of the bank auditors on the extent to which the bank is protected in case of emergencies. The annual capital plan is devised on the basis of the strategic plan for the bank capital management. This plan includes the following important components: existing and planned sources as basis of the pro jected capital growth; the policy of profits distribution including the rate of dividend payment, i.e., capitalization on the basis of the earned and anticipated bank profits. sectors for which the growth of balance assets is forecasted; improvement of the existing banking activities, as well as planning a new set of offer of banking services; investments into modern technology, including ex pansion in the banking network; assessment of internal control and capital allocation in accordance with individual risks per individual bank activities; assessment of the banks need for capital, as well as a forecast of anticipated standing in the following period; calcualtions of a munimum returns on capital rate; quantitative and qualitative analyses of the existing and required resources of the banks internal and external capital. The key reports in the accounting budgeting process are the projected balance sheet and the projected income statement. The projections of balance sheet and income statement are usually focused on a period not longer than five years. The general assumptions for an efficient budgeting and forecasting are the following: price stability in order to eliminate the risk of change in interest rates; stability of exchange rates; realistic growth of the banks balance potential; and strong information base, where the strategically-oriented management accounting has a dominant role. Three facts should be observed in the projection of the potential growth in the banks balance: 1. the development of the region in which the bank does business, 2. the banks developmental tendency in the previ ous period, and 3. an objective survey of the banks position on the financial market. The aim of the projected balance sheet is to show in which way the financially presented planned business activities affect the partial sections of property, capital, the banks liabilities and the financial position of the bank. The following reports generated by the bank can be used for the purposes of strategic accounting budgeting: monthly reports of the bank management on achievements and on cost efficiency, the domain of operational statistics; quarterly reports of the bank management on the dynamics of goal achievement; annual reports on the market share of both the bank and its branches, the domain of the marketing information system; ratio reports for the purposes of measuring performance and comparison with competition (banking and non-banking institutions), as well as of comparison per narrower organizational sections created by management accountants. In the divisionally structured banking company, the budgeting basis is the responsibility centre. In view of this, it is logical to devise business plans starting from the income centre and the expenditure centre and continue to profit and investment centres, finalizing the process on the level of the company, by creating the general budget. To do this, it is necessary that planned accounting reports be devised per responsibility centres, which is the competence of management accounting. Hereinafter, the projected financial reports of the bank will be presented (Survey 1, Survey 2): Review 1: Projection of balance sheet Variable value Assets Net credits 31st Dec. I     8,486,676 9,707,400 10,131,937 10,573,209 11,138,945 11,733,022 Other interest bearing placements 1,377,483 1,078,600 1,125,771 1,174,801 1,237,661 1,303,669 Total interest bearing assets 9,864,159 10,786,000 11,257,707 11,748,010 12,376,605 13,036,691 Interest non-bearing assets 4,235,187 3,595,333 3,555,065 3,509,146 3,490,837 3,456,449 Total assets Liabilities 14,099,346 14,381,333 14,812,773 15,257,156 15,867,442 16,502,140    Non-interest bearing basic deposits 3,862,163 4,441,483 5,377,004 5,391,027 5,479,911 5,496,316 Interest bearing basic deposits 1,259,781 671,387 960,179 1,117,652 1,301,479 1,409,312 Other deposits Total deposits Credits (interest.) 8,181 51,645 64,012 65,744 68,499 140,931 5,130,125 5,164,515 6,401,195 6,574,423 6,849,889 7,046,559 992,109 992,200   Other liabilities (non-interest.) 396,765 298,929 711,244 730,491 761,099 782,951 Total liabilities 6,518,999 6,455,644 7,112,439 7,304,914 7,610,988 7,829,510 Reservations for potential losses per off-balance items 1,117,269 1,117,269 528,000 400,000 300,000 250,000 Own capital 6,463,078 6,808,420 7,172,334 7,552,242 7,956,455 8,422,630 Total capital and liabilities 14,099,346 14,381,333 14,812,773 15,257,156 15,867,442 16,502,140 Off-balance evidence 3,574,284 3,751,979 2,650,000 2,650,000 2,550,000 2,350,000 Business on behalf and for the third parties Issued payable guarantees: 1. Old 2. New    1,812,181 1,812,181 650,000 700,000 700,000 700,000  1,039,296   772,885 650,000 700,000 700,000 700,000 Issued performance guarantees: 1,389,798 1,389,798 1,400,000 1,300,000 1,200,000 1,000,000 1. Old 2. New  194,125   1,195,673 1,400,000 1,300,000 1,200,000 1,000,00 Issued avals, backing guarantees 372,305 550,000 600,000 650,000 650,000 650,000 Review 2: Projection of income statement (in 000 dinars) 1st June  Net income from interest rates 717,818 1,027,487 1,100,602 1,073,685 1,057,131 1,088,562 Incomes from compensations 521,290 807,311 900,493 914,621 975,813 1,179,275 Total income 1,239,108 1,834,798 2,001,095 1,988,306 2,032,945 2,267,837 Operational expenditures    a) Earnings and compensation to employees b) Property and equipment 596,754 733,919 800,438 795,322 813,178 907,135 55,044 60,033 59,649 60,988 68,035 c) Other operations expenditures 429,836 642,179 700,383 695,907 711,531 793,743 Total operational expenditures Expenditures on the basis of loses on loans  1,431,143 1,560,854 1,550,879 1,585,697 1,768,913   (24,903) (8,661) (9,002) (11,541) (12,119) Income from securities sales 36,116 73,392 80,044 99,415 121,977 158,749 Profit/loss prior to tax from profit Profit tax Net profit/loss  501,950 528,945 545,845 580,765 669,792 70,273 74,052 70,960 75,500 87,073 431,677 454,893 474,885 505,266 582,719 The need to plan banking activities as segments of the management process is conditioned by the processes of deregulation and globalization of financial markets. These activities are meant to achieve three goals: operational plans that serve to specify the details on how the overall bank objectives can be achieved; long-term plans that cover the time horizon longer 1. an efficient management of bank resources (Do the right thing) 2. an effective use of bank opportunities on financial market (In the right way) 3. an adequate measuring of efficiency and productivity in banks; for this purpose the Malmquist index is used Š5ËŠ7ËŠ11Ë; it is used as support in the function of supervision over the banking sector as well as in strategic planning. From the aspect of purpose for which they are devised, the types of plans in the bank are the following: strategic plans on the bank level that serve to define the overall objectives of the bank and tend to adequately position the bank in the business environment; than three years; short-term plans that cover a one-year period, a quarter of the year, or a month; permanent plans meant to provide resources for repetitive activities; plans to be implemented in unique situations; specific, strictly specified plans. Strategic planning is a tool meant to translate the bank potentials into real advantage over competition and avoid threats for the survival of banks. The bank potentials are the following: building closer relations with clients for the purpose of satisfying their sophisticated needs, bank image, creativity, flexibility, innovative power, and other. The role of management accounting is to communicate among the budgetary goals, achieved goals, and satisfaction; hence it is a sig nificant strategic information potential for the creation of motivational signals in the long run. Therefore it is necessary that a requirement should be satisfied that all responsible for the budget process define goals in the budget on realistic bases. Strategic business units in the bank are engaged in search of the means to achieve and maintain the competitive advantage. The manner in which a strategic business unit will ensure a competitive advantage and achieve the banks goals on the way is defined by the strategic business unit plan. A typical business unit of the bank is a profit centre (e.g. bank branch) and it is necessary that separate plans be devised for them. 5. Accounting in the function of control The process of control entails measuring the achieved goal values and taking collective actions if necessary. From the financial aspect, the control is conducted in a numbar of phases: 1. standard identification 2. performance measuring 3. comparing performance to standards and 4. evaluation of performance and taking appropri ate action Š3ËŠ4Ë. For an efficient operation of a control system on the bank level that should allow for a quality bank management, it is necessary that an overall internal control system be established. The complexity of the internal control systems depends on several factors: bank size, scope of business, type of business bank is engaged in, risk in each business sector, the scope of individual transactions, controls carried out by the executive directors of the bank and of branches, the scope of decentralisation and organizational structure. It is the obligation of the bank management to provide control that will ensure the safety of the founders invested capital and especially the safety of deposits. The activities of internal control should be twofold: preventive and repressive. Acting preventivelly, the internal control is expected to prevent irregularities in business and contribute to the organizational settlement in the bank which will in turn alleviate all the potential situations that may turn into irregularities. The repressive activity of the internal control is reflected in that as a detective control, it investigates the business to reveal possible irregularities, undertakes appropriate actions to alleviate the consequences of these irregularities (illegal actions) and creates an opportunity for starting a disciplinary action against the person responsible. In view of the fact that the internal control service largely leans upon accounting in its work, it can be rightly deemed as one of the most important functions of accounting. The basic presumption here is that accounting disposes of an appropriate evidence on business and also allows for other controls for the purpose of testing the efficiency of the bank. The following can be implemented for the purposes of financial control: 1. budgetary control, 2. financial indicator analysis, 3. financial auditing. The control importance of accounting is fully meaningful only on condition all accounting activities are performed accurately, timely and correctly. Hence the accounting activities have to be systematically controlled by the banks authorities so that accounting should make a valid basis for internal control. The control importance of the accounting unit can especially be observed through: the control importance of financial evidence, the control importance of reports, and the control importance of bookkeeping accounts. Furthermore, the effect of the implementation of modern technique upon control importance of accounting should be taken into consideration. The accounting is the basis of systematically processed data (systematic financial records) which make a very important basis for the control procedures of authorised services. Creating an adequate reporting system, that is, the use of a number of interrelated and time-comparable reports, adds to the control importance of the internal reporting service Š1Ë. The basic links in the data control are the contos (accounts). A precondition for strengthening the control importance of the contos themselves is a credible documentation. The balance sheet account containing elements that do not correspond to the contents of that account has no control importance because it is not homogenous. A balance account (conto) that is not integral has not conteol importance since it does not report the real state due to lack of certain transactions that change the account turnover. The term control independent on banking business process means internal and external auditing. Internal auditing is part of bank management function that explores assesses and improves internal control. Internal auditing provides support to the bank accounting for the purpose of a more efficient management and in this sense it assesses the efficiency of internal control in the banks organizational units. As part of the management system, internal auditing has to be appropriately organized. The need for internal auditing is more pronounced in big banks that have a dislocated network of branches for the sales of banking products. The task of internal auditing is to prevent illegal activities in order to avoid consequences and damage for the institution and for its clients, or at least to diminish them as much as possible. The internal auditing of a bank has to be committed to checking the economic purpose of the business flow: e.g., its task is to devise propositions for improvements and rationalizations in organizational procedures, to aid reduce the costs of bank property and personnel. Shortly speaking, internal auditing is not restrained in any way as regards the objects of auditing: although the tasks are the same, as a rule, banks differ by the premises, focuses, and the intensity of the achieved level of technology introduced. Managers and independent external auditors should cooperate as their goals coincide: they have to create and distribute the financial reports that present a truthful review of the outcomes property flow and the general standing of the bank. The overall company plan, the planned goals and tasks should serve as basis and tool of performance management control and analysis. The accounting control and analytical information on the principles of well organized feedback become a tool for the compnys business system management and orientation towards the set goals. The accounting control of the achieved outcomes in the banking business is based on the budget, hence it is often called the budgetary control. It can be observed from several aspects: the control of the achievement of the banking in stitution as a whole; the controlof the achievement of the banks profit and investment centres; the control of the achievement of the cost centre of the bank, where the criterion is the deviation from the anticipated costs and the beginning of the management process for a new cycle of the bank management. Conclusion Generally speaking, the importance of accounting is twofold. On one hand, through its activities accounting autonomously tracks irregularities in the operations of the bank as a whole, hence it has a role of a control body. On the other hand, accounting makes basis for the activities of other control bodies in the bank, in that it allows for a detailed insight into the flows of the entire banking business. In this way the control function of accounting is expressed indirectly through the activities of other bodies. Lately, and primarily due to the economic crisis, the primary management activity planning is rather pronounced in banks, as is the accounting planning (budgeting), as a tool in the realization of annual planning, especially in the cost management segment. There is no efficient bank management without appropriate planning and this in turn is meaningless without an appropriate control. The strategic control requires an active monitoring of the environment and gathering quality external information. The capital analysis and planning are critical factors for the management in achieving desired goals. The key factor of the strategic planning process is the analysis of the present and the future equity capital as regards strategic goals. As a manegement function, control is not a registrar of current banking activities, but is rather a navigateor and innovator of business activities to be performed in the future. The bank manager is expected to create various reports for various types of business decisions: on an annual level, on a semi-annual level, on a quarterly, and on a monthly levels. The higher the risk and uncertainty in business on the financial market, the higher the demands for reporting on the performance of the bank, as well as for forecasting information. A successful strategic management of the bank cannot be effected without an adequate information support of the management accounting. In other words, management accounting should put a stress in satisfying information needs of the strategic management on the following activities: 1. introducing a new structure of reporting to the bank management; quarterly and monthly reports; 2. introducing new information systems based on integration of planned information of both internal and external character; 3. introducing new control and rewarding systems as a measure for tracking performance in order that they should be improved. An adequate synchronisation of the functions of financial reporting planning and control together with a powerful information support is not enough; what is necessary is also a quality banking management to govern all the business activities of the bank in the achievement of strategic and other goals. REFERENCE Š1Ë \urić, D., (2010), Izveštaji upravljačkog računovodstva za potrebe odlučivanja u poslovnoj praksi, Menadžment 55, str. 17-24. Š2Ë \urić, D., Knežević, P. S., Barjaktarović, R. S., (2011), Upravljačko računovodstvo u funkciji sticanja konkurentske prednosti i bankarski kontroling, Menadžment 59, str. 5-15. Š3Ë Fries, S., Neven, D., Seabright, P., (2002), Bank Performance in Transition Economices, EBRD. Š4Ë Fries, S., Taci, A., (2002), Banking Reform and Development in Transition Economies, EBRD. Š5Ë Grifell-Tatje, E., Lovell, C.A.K., (1996), Deregulation and productivity decline: The case of Spanish savings banks, European Economic Review 40, pp. 1281-1303. Š6Ë Hopkins, E.W., Hopkins, A.S., (1997), Strategic planing financial permormance relationships in banks: a causal examination, Strategic Management Journal 18:8, pp. 635-652. Š7Ë Isik, I., (2008), Productivity, technology and efficiency of de novo banks: A counter evidence from Turkey, Journal of Multinational Financial management 18, pp. 427-442. Š8Ë Knežević, S., Milosavljević, M., Dimitrović, V., (2010), Značaj strategijskog upravljačkog računovodstva za upravljanje bankama, Menadžment, 57, pp. 23-29. Š9Ë Kloten, N., Von Stein, J., (1999), Geld-Bank-und Borsenwesen, Schaffer-Poeschel Verug, Stuttgart. Š10Ë OECD, (2008), Rentabilite des banques comptes des banques 1996-2005. Š11Ë Primorac, M., Troskot, Z., (2005), Mjerenje efikasnosti i produktivnosti hrvatskih banaka Malmquistovim indeksom promjene ukupne faktorske produktivnosti, Finansijska teorija i praksa 29 (4), str. 367-383. Š12Ë Wu, Cheng-Ru, Lin, Chin-Tsai, Tsai, Pei-Hsuan., (2010), Evaluating Business Performance of wealth management banks, European Journal of Operational Research 207, pp. 971-979. Project Vulnerability: State of the Art and Propositions for Future Framework Development UDC: 005.334:005.8 Sanja Jovičić2, Franck Marle1, Jean-Claude Bocquet1, Marija Janković1, Ludovic-Alexandre Vidal1 1LaboratoireGénie Industriel, Ecole Centrale Paris, France 2Faculty of Organizational Sciences, University of Belgrade sanja.jovicic¿ecp.fr This paper reviews research studies of vulnerability in different scientific disciplines. Here, we also challenge present research to incorporate this concept into the domain of project risk management. The formulation of vulnerability has usually common though contested meaning. It is explained as a degree to which a system is susceptible to harm and incapable to cope with its adverse effects. But the concept seems not fully operational. The challenges confronted to make it operational are to develop a robust method for its assessment; afterwards to promote adequate strategies for vulnerability reduction. Depending on a purpose of assessment as well as on specific environments, methods for vulnerability assessment do not show commonness among themselves, even not among the same scientific disciplines. The main objectives of this paper are to establish common ground for vulnerability and identify potential framework developments for project risk management. 1. Introduction Integrating analysis of vulnerability into traditional risk management approach seems to be a promising step in effective risk response planning. According to number of scientific publications on the Web of Science, increasing interest in concept of vulnerability is present among various disciplines. It must be noted that just several works are present in a domain of industrial engineering and particularly in a field of project management Š32Ë. Benchmarking more then 30 articles about vulnerability in different research areas, we have found that terms used on a conceptual level as well as application practices are still very vague. The main purpose of this paper is to identify characteristics of vulnerability and key issues for its complete understanding in order to make this concept suitable for project environment. As we progress further in our research topic, we aim to build a coherent conceptual framework integrated with traditional project risk management methods that can be effectively used by project risk managers. Having the mentioned purposes in mind, we start our paper by describing the project and its specific environment. Afterwards, we make a brief review on traditions of project risk management highlighting a need for introduction of vulnerability. The second and the third parts are dedicated to better understandings of vulnerability among different research areas and current approaches to assess vulnerability. The fourth part addresses vulnerability issues that need to be adapted for project environment. As this paper is conceptual framework, we conclude it with confrontation of challenges of the next step of our future research process. 2. Background When considering project environment, it is essential to define what really project is. Among numerous ways to define project, this paper adapts a definition that project is a temporary and unique endeavor undertaken to deliver result Š25; 21; 32Ë. Uniqueness and temporariness are the characteristics that make project different from everyday activities. Its uniqueness is mirrored in unique, specific target values, environment, resources, management styles and other parameters that constitute a project system. The temporariness is manifested through defined beginning and end Š25Ë. Targeted values are project deliverables corresponding to service, product or extension of understandings, scientific contribution and other beneficial changes Š29Ë. Deliverable is directly provided by project operational activities. As projects get more complex, managerial activities whose primary function is directed to distribution of information and keeping a project schedule on its track, have become fully inherent in project execution. Managerial activities are organized into five main processes: initiation, planning, realization, control and monitoring and project closure Š25Ë. Project can be seen a system whose structure consists of several levels. While it is a specific system whose components are rarely linked in a way that causality can be easily explained, one of the most suitable methods to describe project system is using a system thinking method. This method is high exploratory and it enables decomposition of a project from its smallest to its general parameters without loosing a sense of a whole. Thus, project can be structured Š32Ë through: Project phases, Project values, objectives and goals, Project processes and activities, Project resources, actors, know-how, etc. Considering this composition, we are able to understand a project mechanism. Going through its phases, project actors use resources and other inputs to perform project tasks and achieve deliverables. Projects consist of a large number of stakeholders, tasks, objectives and other components, and they all are correlated; that correlation is characterized either as physical, geographical, logical or cyber Š18Ë. Because of numerous project components and their interdependent multinatural links, project by itself is a very complex system. Relying on a fact that a project is a system whose operations are influenced by conditions in other external systems, its complexity is even larger. The complexity, on one side, enables project to provide a unique and competitive deliverable. On the other side, it makes success more unpredictable. On their way to provide a deliverable, projects are exposed to any internal and/or external risky events Š3Ë that prevent them to reach their objectives. Thus, our research process is also focused on a negative connotation of a risk. Risky events hinder project to reach its targeted values. With increasing complexity and importance of projects, the need to manage risk arises naturally Š21; 13Ë. Authors generally agree Š25; 21Ë that project risk is managed through four-step process. Firstly, risk is identified and analyzed in order to plan a proper risk response strategy. Strategies are monitored and new risks are reassessed. For completing each step, numerous methods are developed. Still, many limits in their application are present. As this paper is not directly focused on a problem of project risk methods, more details can be found in a research paper written by Marle and Gidel. Š22Ë. Our research highlights a shortage of existing project risk methods that are focused on a single risk and generally do not consider propagation of negative changes through a system. In order to bridge this gap, we go towards a current risk management tradition and include both multiple stressors and extent to which the effect is propagated until it reaches its final impact. To open up a link between a cause and final impact, concept of vulnerability seems like a natural next phase in project risk management path of evolution. As the traditional project risk methodology is focused on a decision about risk mitigation in a time t0 , vulnerability analysis tries to predict conditions of a system in times t1,t2, …tn caused by a change in a time t0. Integrating vulnerability in a traditional project risk methods will enable observation of a project in a whole by explaining the reason why some risks become risky events and how the effect of their occurrences is propagated through system until it changes the final project values. Although the approach seems very promising, numerous limits for its implementation are still present. Firstly, it is hard to include or identify indicators that are relevant while defining one system. Also, prediction in time t0 suffers low accuracy. Vulnerability runs even greater uncertainty because it estimates conditions somewhere in the further future trying to capture changes and shape future states. Besides all the difficulties, the concept exists in numerous scientific disciplines. Some disciplines (E.g. Global Environmental Change, Disaster Management, etc.) have a long history of its application; but the concept is still not fully developed and consolidated. Thus, the main objective of this paper is to understand and make a foundation for development of a concept of project vulnerability. For that purpose, we benchmark different concepts to find commonness and differences in a language of vulnerability. The second part is dedicated to attempts and stakes to make the concept operational. Then, we translate identified issues into project environment and conclude the work with perspectives of our future research processes. 3. Vulnerability A term of vulnerability is found in numerous scientific disciplines: from economy, engineering, environmental sciences, transport to social sciences. Although the term is widely theoretically elaborated, it still lacks on constant, common meanings. Because of its ambiguity, the concept of vulnerability is applied for many research purposes. As a result, various objectives, methods and contexts where applied have led to even greater divergences in its understanding. For example, research processes undertaken in pure natural systems differ from research processes in social or engineering systems. As there are no systems that operate independently from others, efficient research processes require consideration of vulnerability arising in interaction of multi-natural systems. The word vulnerable has its root in Latin vulnerare that means: to wound or susceptibility to being wounded. The definition refers to harmful events or perturbations versus consequences. The word by itself has no meaning. It primarily lacks on answer to the question: vulnerable to what. Starting from the late 1980s, the vulnerability analyses have become more specific. Different contexts have defined different research purposes and directions. So, we can isolate two extreme approaches Š11Ë: 1. Outcome-related. Research processes whose purpose is to identify potential negative effects that change predefined system values (e.g. vulnerability to famine); 2. Hazard-oriented. Research processes that follow this approach are used to identify one hazard and assess vulnerability to occurrence of different risky events that correspond to observing hazard (e.g. vulnerability to occurrence of extreme natural events such as Tsunami). Besides the stake that different purposes require consideration of vulnerability in different manners, there is also a problem with understanding of its connotation. Vulnerability, by most authors, has a negative connotation. It is usually defined as a degree to which a system is susceptible to, and unable to cope with, adverse impacts Š28; 23Ë. There are three key parameters present in all formulations: exposure, sensitivity and resilience. 1. Exposure is portrayed in stresses and perturbations that are experienced by a system. Stresses and perturbations are characterized in terms of magnitude, frequency, duration and areal extent of the hazard Š8Ë. 2. Sensitivity is a degree to which a system is expect ed to be modified by stresses. 3. Resilience defines how quickly a system recovers to a state defined as a well-being. It must be noted that a generic meaning of parameters in certain research reports still have both negative and positive connotation Š23; 9; 12Ë. It is clear that different contexts have different aspects on vulnerability independently of a research area. Our analysis of vulnerability starts from a domain of Environmental Sciences since it is the pioneer in this concept development. In a domain of Disaster management vulnerability is considered as a concept dependant on hazardous events. Later researches include assessment of vulnerability not particularly to extreme events but also to all stresses and shocks that somehow disturb systems well-being. The interest in extension of this concept of vulnerability, from extreme natural hazards to global climate change, has increased after the environmental adaptation and mitigation policies had become priority Š15Ë. The research approach in this area views environmental system as a source of hazardous events versus social system as a subject to be affected. As the largest number of risky events associated with natural hazards cannot be prevented Š10Ë, there is little chance for adaptive strategies. Thus, the analysis of vulnerable elements and system activities is directed to choice of proper mitigation strategies and protection of preferred system values. As changes in the environment are reflected on social systems and the linkage between ecological and social systems cannot be formulated in a single universally accepted way Š5Ë, there is no single defined way to choose approach, key parameters or corresponding indicators to define vulnerability. The choice depends on special needs and leading ideas that research follows. One group of approaches does not consider integrative socio-ecological system. The supporters of this thinking follow the idea that exogenous risky factors are distinguished from endogenous risky factors Š11Ë. While exogenous risky factors are considered as incontrollable, endogenous risky factors constitute intrinsic vulnerability. Researches focused on exploration of factors that constitute intrinsic vulnerability as a property of one system have a relative long history in evolutionary path of this concept. Thus, factors of the intrinsic vulnerability are seen as a result of the absence of entitlements Š14Ë, institutional structures Š8Ë, and perception of insecurity Š14Ë or as a result of a cumulative pressure of hazards and vulnerability Š6Ë. The newest trend seems more promising and it switches a focus of observation from hazardous event to vulnerable element of a system taking into account coupled existence of pressure and vulnerability. This approach is dominant in works of Turner and his colleagues Š28Ë where they also tend to describe how vulnerability propagates through the system over the time and what potential trade-offs of values are. Evolution in research approaches in domain of Environmental Changes gives a major basis for better understanding of vulnerability in other contexts. Although other studies may look very distant, actually they share the same concept postulates. The question of differences is a question of research orientation. The field of crime narrowly follows the idea developed in the field of natural disasters. Here, research process es tend to identify social facts that are somehow conceptualized in the occurrence of crime among individuals or groups of individuals Š7Ë. as a level to which an entity, sub-system or system has been negatively changed. Resilience is a degree of recovery over the time. Similarly to identification of crime factors, researchers in a domain of mental health tend to identify causes of different types of mental disorders Š31Ë. The research process starts with identified disorder and defines patterns of stresses and shocks that cause observed disorder. The aim of vulnerability analysis in a field of road transportation does not differ significantly from the concept in the mental health. As transportation systems are closely related to the concept of reliability, authors view vulnerability as a lack of reliability. Thus, the vulnerability of transport systems is defined as susceptibility to incidents that can result in considerable reductions of road network serviceability Š4Ë. Very similar approaches and purposes are found in all infrastructural researches including information sciences too. Finally, in a context of project management, the concept of vulnerability is on its beginning of the evolutionary path. As in other contexts, project vulnerability is defined as an extent to which a system responds to a hazardous event Š34; 32Ë. The need for project vulnerability is introduced by Zhang in order to explain the project role in mediating between risk occurrences and final consequences. By understanding project and its malfunctions, this approach enables identification of project constraints to withstand or cope with effects of risky events. These findings are directed to development of adaptive strategies or strategies of vulnerability mitigation. Unlike the strategies for risk reduction in traditional project risk approaches, those strategies are focused on improvement in project management in order to protect system from multiple stresses and keep a system in a balanced well-being state counting on effect propagation. While there are many differences in vulnerability approaches between contexts and within concepts themselves, certain commonalities exist. This is a synthesized list of issues that should be addressed while establishing a framework of project vulnerability: Vulnerability is multidisciplinary concept that consists of exposure (of an entity, sub-system, system) to stresses and disturbances, and difficulty in coping with them. Exposure is constituted of stresses, shocks and disturbances that are expected to have effects on an entity, sub-system or system. Sensitivity is defined  Mostly mentioned strategies for reduction of vulnerability are: adaptation and mitigation. Adaptation has evolved as a need to response to brand new sets of circumstances. Adaptation tends to extend a range of varieties with which it can cope and it is achieved through changes in management activities, organization and other settings. The strategy is very rarely applied in systems that are not policy-driven systems. Strategies of mitigation are evolved by experiences in dealing with known and understood stresses and disturbances. Its application is very present in natural systems and other systems that are exposed to unmanageable hazards; thus, mitigation is the only way to cope with. Analysis of vulnerability refers to a possible future harm. State of en entity, sub-system or system is always evaluated in a present moment. No vulnerability analysis provides a universal, accepted mechanism of key vulnerable parameters that could be used as a good base for designing methods to measure or assess vulnerability. It seems that all attempts to make this concept operational are very intuitive and based on particular objectives and questions addressed. 4. Assessment of vulnerability Finding suitable metrics of vulnerability is a central research challenge. While there are many attempts, most of them are adapted for specific, particular research purposes. A single method has not been established yet. Researching existing literature on vulnerability assessment, we have found that the first reason that it is hardly measurable is that the concept of vulnerability is not completely clarified. The word vulnerability by itself has numerous meanings and its semantic overflow produces numerous definitions. On the other side, no definitions explain mechanism of parameters that constitute vulnerability. Lack of theory guidance complicates its expression as a mathematical function. Second important stake in establishing metrics is that vulnerability is not directly observable phenomenon Š24Ë; its relevant parameters and corresponding indicators are hardly captured. Without indicators, metrics does not exist. Considering that vulnerability is complex, dynamic, compounding and cumulative, sometimes irreversible and frequently impossible to contain Š1Ë, establishment of vulnerability indicators faces numerous limits. First, vulnerability of one system arises from interaction with other systems but also from malfunctions of its own system mechanisms. It makes a relevant area of observation very wide and requires a large number of indicators to be included. As large fields of observation include numerous indicators and most of them are impossible to be captured, the method suffers a risk being not holistic. In addition, indicators are often chosen according to certain needs and preferences of research sponsors. Vulnerability indicators are functions of observable variables Š15Ë, thus a question of arguments used for their establishment is mandatory. The real difficulty is that element, group of elements, sub-system or system is vulnerable to multiple stresses so vulnerability is manifested in various trajectories. Some trajectories do not necessary lead to material damage as not all coping strategies are based upon financial or material investments. The other significant challenge confronted is the implication of system governance to occurrence and mitigation of vulnerability. Successful methodology must not neglect those intangible variables, although their values are hard to be defined. Besides incorporation of intangible variables, vulnerability is a dynamic concept and its structure is changed over time. It means that the future system parameters are usually different from present parameters. Those changes are caused either by cumulative vulnerabilities, occurrences of new risky events, changes in trends or all of them together. Being aware of potential limits and failures, certain authors found necessary to establish indicators and conceptualize them as standards Š17; 30Ë. In most cases, vulnerability indicators present current state and estimate potential changes somewhere in the future Š15Ë. We have found just few works on vulnerability assessment that concern dynamic characteristics of vulnerability Š19Ë. The next important question while assessing vulnerability is a question of measurement scales. Since there is no single universal way of vulnerability definition, measurement scales are dependant on types and purposes of research processes Š15Ë. It implies that the value of vulnerability can be expressed as an absolute measure. Absolute measure is a potential or actual financial or any material loss. Sometimes, its expression is an interval. As many authors follow the idea that assessment of vulnerability makes sense only if it supports making decisions, comparability is said to be a key notion of vulnerability Š16; 33Ë. In that case, it is expressed as a relative number or excess over thresholds Š20Ë. Although the vulnerability assessment is rather a theoretical concept, some steps to make it operational are established. Generally, the characteristics of steps are common and when applying them in the context of project, issues that need to be addressed are follows: The concept must be clarified on its theoretical level and defined in a way to be translated into a function. The vulnerability is contingent to certain hazardous events. Hazards can be either external or internal. Vulnerability is a multi-scale and multi-natural concept. It means that vulnerability can be assessed on different levels of a project system. A multidimensional nature is determined by different nature of damages and different units that are used for its expression. The method must not neglect dynamic characteris tics of vulnerability. To make assessment of vulnerability valid, indicators and parameters must be carefully chosen. They must illustrate the present condition as a whole, as well as potential future states of a system. 5. Concept of vulnerabilityin a project context Existing state of the art on project vulnerability proves that this concept, though attractive, has not been examined by many project researchers. Pioneer work on project vulnerability by Zhang Š34Ë gave us the initial sight of project vulnerability; but his work remains on the level of conceptual understanding and attempts to identify sources of project vulnerability. Our thinking of vulnerability rests primarily on research conducted in Ecole Centrale Paris Š21; 32Ë. The concept is particularly adapted to a context of project complexity. Although basic framework is established, further improvements are necessary for its wider application. Relying on the existing knowledge on project vulnerability and vulnerability concepts in other concepts mentioned above, this work aims to provide a theoretical basis for its better understanding. Thus, we tend to incorporate consolidated terms into a coherent project vulnerability framework; as we progress in our research, we aim to make this concept fully capable for application by project risk managers. The common definition of vulnerability in other contexts is also suitable for projects. Thus, we adopt definition of vulnerability in negative terms: degree to which a system is susceptible to and unable to cope with adverse effects Š28; 23Ë. Relying on this definition and common characteristics mentioned earlier in this paper, vulnerability is influenced by the ability of a system to absorb shocks and autonomy to self-organize in order to recover from the initial impact Š11Ë. Vulnerability is manifested in potential deviations between planned/desired and actual project values. The deviations are results of systems incapability of neutralizing the effect or/and lack of awareness of impact propagation and potential strategies for its mitigation. While traditional project risk methodology is interested in likelihood of a risk to become an event and its direct impact, vulnerability is dedicated to analysis of systems capacity to absorb shocks and adapt capacities to neutralize effects with minimal residual risks. In other words, traditional methodologies are used to analyze severity of a risky event in a time t0 for a choice of a risk mitigation strategy; vulnerability analysis estimates global gravity of the chosen strategy in time t1, t2, …, tn. This implies that the concept of vulnerability is an extention to traditional project risk methodologies. Thus, the first dimension of vulnerability is exposure. Exposure is defined as all risky events that are potentially hazard for project progress. While traditional project risk methodology considers if the risky event is internally or externally generated Š3Ë, vulnerability analysis is not interested in nature and sources of risky events. Exposure is used to define expectation that neg ative impact will affect the system. The magnitude of the impact is defined by the magnitude of a risky event, but its gravity is determined by sensitivity. Sensitivity is defined as nature and degree to which a project system is adversely affected by certain risky events. The sensitivity is expressed by desired value and level of tolerance that is called threshold. If the negative effect exceeds threshold, project is said to be incapable to self organize or adapt to that impact. The system requires new measures to be applied. According to the whole project adaptive capacities, decision maker tends to choose the one strategy that effectively recovers a system from failures. The adaptive capacity is the third dimension of vulnerability: non - resiliency. According to the mentioned definition, vulnerability is a function of: exposure, sensitivity and adaptive capacity (Eq. (1)). Exposure and sensitivity constitute potential impact (Eq. (2)). Thus, vulnerability is a function of potential impact and adaptive capacity (Eq. (3)). V = f (E, S, AC) PI = f (E, S) V = f (PI, AC) (1) (2) (3) Where V is vulnerability, E is exposure, AC is adaptive capacity, a PI is a potential impact. Those simple conceptual functions are expressed just to describe the way vulnerability elements are related. Nevertheless, the functions are not directly operational. Although the meaning of term vulnerability is somehow theoretically understood, it is not operational as long as its measurement system is not established. Taking into account that vulnerability is not directly observable phenomenon, measurement system cannot be established without defining the purpose. Besides many reasons why vulnerability is measured Š15Ë, the purpose of our further research is outcome-oriented. Thus, our tendencies are to identify vulnerable project elements, tasks and processes and propose strategies that mostly contribute to the balance of project parameters. As there are polemics about parameters that define project success Š2Ë, we claim that they all can be captured in a Golden Triangle that consists of: schedule, cost and quality. To make a complete project vulnerability framework, we need to identify relevant indicators that can explain concept in a whole. A structure and key indicators, in dynamic and complex systems such as a project is, are hard to be captured. In order to catch a sense of whole, we propose to avoid a traditional thinking of breaking down a problem and observe project through system thinking. System thinking is a heuristic discipline Š27Ë for seeing a project system through multiple levels and interrelationships between components that constitute those levels. Resting on the work by Vidal Š32Ë, project as a system is separated into phases (Figure 1). Phases consist of certain project values and objectives that are to be achieved. Project values and objectives are provided through operational tasks managed by project management processes. And finally, management processes and operational tasks are performed by resources and different types of inputs. Observing a project system in this way allows us to underlie structures of project components and their interactions that shape conditions under which some types of risky events become likely Š27Ë and opportunities to cope with their adverse effects. Figure 1. Steps in vulnerability identification using system thinking method Š32Ë 5. Conclusion and perspectives This work is primarily focused on better understanding of a concept of vulnerability in order to define project vulnerability framework. For that purpose we have presented a broad state of the art on the basis of different aspects of vulnerability. As concept is considered as theoretical, we have reviewed current attempts and stakes to make it operational. Resting on commonness in vulnerability concepts we synthesized its characteristics: Vulnerability is an extent to which a system is inca pable to cope with negative effects; t consists of: exposure, sensitivity and resilience; Vulnerability is changed over the time and not di rectly observable phenomenon;  The concept lacks on metric system. The difficulty to build it arose from difficulties to identify relevant indicators of vulnerability. Concept of project vulnerability is partially under stood and developed. Indeed, this broad state of the art and a proposition of a new conceptual framework are trying to make clear issues on project vulnerability. Identified underlined structure of a concept opens up new questions that are focus of our future research: Identification and classification of factors that in fluence project vulnerability. Finding consensus about crucial vulnerability fac tors. Identify most common trade-offs of project values. Compare preferences in trade-offs and other vulnerability elements due to subjective and other specific issues that influence perception of vulnerability. REFERENCES Š1Ë Anderson, M.B. Vulnerability to disaster and sustainable development: A general framework. In: Munasinghe, M. Clarke, C. (Eds.), Disaster Prevention Sustainable Development: Economic and Policy Issues. International Decade for Natural Disaster Reduction and World Bank, pp. 41-60, 1995. for Š2Ë Angus, Y.G. Flett, P.D. Bowers, J.A. 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A redefinition of the project risk process: Using vulnerability to open up the eventconsequence link, International Journal of Project Management, Volume 25, Issue 7, pp 694-701, 2007. Cost Reduction in the Time of Crisis UDC: 005.21:657.497.3(497.11)2008/2010 ; 338.124.4 Tanja Milić Faculty of Organizational Sciences, Belgrade tajci¿fon.bg.ac.rs The 2008/2010 period was very difficult for both employers and employees, all over the world, as well as in Serbia, and it is expected, according to estimates of experts, that the effects will be felt until 2014 and even later in some industries. Surprised with the crisis situation, without proper cost management, most companies resorted to rapid cost reduction strategies. As revenues fell, and cash flow was reduced, the companies of all sizes have established a stringent controls of every major expense as the first answer to the crisis. The strategies that companies have implemented in this period had a more or less profound effect on their business. This paper analyzes the most frequently used strategies for cost reduction applied during the 2008/2010 crisis in companies around the world, describes a logical sequence of events and consequence, which follows their implementation, and proposes that a new proactive approach to cost management and cost reduction in companies be introduced, which should support stable business in good times as well as in bad times. 1. Introduction Cost reduction is a normal activity in any company and means the activities of cost tracking and evaluation performed by the manager for the purpose of their reducing. These activities can be part of a formal programme established in a company as a whole, or they may be of informal nature and restrained to one depertment or one individual. In the periods of crisis, it is the cost reduction that managers pay special attention to, as a basic strategy of business survival. The period of recession is characterised by the fall in incomes and in cash flows, which forces the companies of all sizes to impose a strict control over any large expenses in their struggle to survive. The question is, however, to what extent thus developed cost reduction strategies implemented in site in the course of the crisis can bring benefits for the companies implementing them. This paper presents the most frequently implemented cost reduction strategies to which companies resort in the recession times, highlights the negative aspects of their implementation, as well as proposes possible solutions and change in the approach to cost reduction in companies, in order that optimum results be achieved in different conditions of business doing. 2. Most frequently implemented cost reduction strategies during recession The basic strategy the managers of all companies in the recession period resort to is the cost reduction strategy. Surprised by an unexpected crisis situation, the fall in cash flows and in revenues, pressed by the time and the need to react promptly, they are in a situation of an imminent need to make the company survive by reducing costs. The most frequently implemented cost reduction strategies in the 2008/2010 recession are as follows: The reduction of infinite expenditures such as training and education, fixed expenses, IT expenses, etc. Freezing and/or reducing compensation, i.e., earn ings, bonuses, insurance, etc. Dismissing employees. Postponing and/or cancelling capital expenses and/or investments. Reducing the costs of marketing, sales and product development, such as research and development, economic propaganda, travels, promotional materials and events, etc. These strategies result from the so-called reactive approach to crisis situations, where the management of the company finds it most important to instantly reduce the costs of their operations in order to ensure the company survival. This is the case of a classic top-down approach to cost reduction where the top management defines a sum in terms of the amount of money by which the costs should be reduced, discusses the main cost categories and advises the lower level management to perform adequate reductions to achieve a necessary target amount of savings. The selection criteria in such situations include primarily the answers to the following questions: 1. Will the costs be reduced low enough? 2. Can their reduction be performed promptly enough? 3. Will the company be able to survive that reduc tion? The selection criteria rarely include the following question: 1. Will the company profit in a long term if it performs a short-term cost reduction now, due to the recession? 3. Effects of the most frequently implemented cost reduction strategies in a recession The implementation of reactive strategies in facing the consequences of a recession is mainly oriented towards short-term effects and a short-term gain for the companies implementing them. Namely, viewed in a long term, none of the mentioned cost reduction strategies earns the company any benefits. On the contrary, in a long-term perspective, companies face problems caused by the lack of necessary resources, primarily human resources, and then the consequences of the existing employees reduced productivity, their inadequate education and innovation of knowledge, lost enthusiasm, and finally, the negative effects of lagging behind technological development, undeveloped or weakened market position, reduction in the income profitability, all of which in the long run increase the costs necessary to pay to make up for what is missed. Strictly speaking, the following effects can be expected in case the mentioned cost reduction strategies are implemented: The reduction of infinite expenditures such as training and education, fixed expenses, IT expenses, etc., results in short-term savings that may be sufficient to ensure the companys survival at the moment of crisis, however, it limits and denies the employees further development and consequently the development of the company as a whole. Restrictions on technologies and employee development will be felt in a weakened competitiveness of the company in this domain, especially so if the competition manages to further invest into this segment of their operations, despite the crisis. Freezing and/or reduction of compensation, that is, earnings, bonuses, insurance, etc. will also result into short-term savings for the company, however, it will directly be reflected upon the employee motivation and will directly affect their performance. These will be reduced to a certain extent, however, not as much as in case of the employee dismissal strategy which may result in ever larger losses manifested in reduced production, increased waste products, failure, breakage, wastage in relation to the savings achieved by implementing this strategy. Employee dismissal as the next step in reducing costs in a recession has a dramatic effect upon a general state of employees in the company in the time of crisis. It producess by far the most negative consequences for the productivity and business operations of the company in general. It is reflected in the fear and uncertainty felt by the employees and, accordingly, in a dramatic fall in productivity. A tense, uncertain and stressful work environment results in reduced creativity and enthusiasm in the employees. The lack of ideas and the opportunities for their realization may result in the talented individuals leaving the company, which most often is the case, and this means a massive loss for the company, one that it will have to compensate later. Regardless of the fact that it supports the efforts to achieve short-term savings, postponing and/or cancelling capital expenses and/or investments may have the effect of a missed or expired investment, where a larger loss results from the effect of a missed investment, one that the competition managed to realize first and thus was in a position to reap success in the post-crisis period. The loss suffered by the company in this case equals to the missed profits it would have earned had it been the first to realize the investment, whose results are now enjoyed by the competition. In case of an expired investment, that is, an investment that loses value and importance with the end of the crisis, the only loss suffered by the company equals the amount invested by the time the recession started. Reducing the costs of marketing, sales and the product development, such as reduction in investments into research and development, economic propaganda, travels, promotion materials and events, etc., whatever the short-term savings, may directly result into a weakened market position of the company and the loss of a future race with the competitors and this is the largest and the most dangerous fundamental loss the company can suffer. This is especially true for a company that happens to be relatively young or insufficiently affirmed, built, well-known or present in the market. In implementing this strategy companies have to find a balance with the competition. Market is a dynamic category and this especially applies in case the competition is in a position to have a more powerful campaign even in a recession period and to invest into research and development. The company that lags behind the competition due to having implemented this strategy will face an increased danger of the loss of its market position, even during a recession. The longer the recession, the more serious the above described long-term consequences of the implementation of the above listed strategies. 4. Effects of the most frequently implemented cost reduction strategies in a recession and challenges in the postcrisis period 5. Remedy to the consequences of the most frequently implemented cost reduction strategies in a recession With the recovery of the merket, companies are in such a situation that they have a growing need to increase their income, however, due to having implemented the most frequently implemented cost reduction strategies during a recession, they no longer have the necessary human and technical resources to achieve that. The cost reductions performed by some managers in a crisis period were aimed at survival or at achieving certain savings by the top management, not for the efficiency purposes. The reduced productivity can well be raised to a higher level in certain business units, however, it is neither sustainable nor efficient. The departments with insufficient staff or finances may do business successfully in the present period, however, they are incapable of growing further. The budgets, the personnel and the plans for long-term projects in marketing, technology, infrastructure and other areas are rather poor at the moment. They are not inadequate only from the aspect of achieving their pre-recession levels, but also from the aspect of the time required. There is no zest any longer. Knowledge is lost. Some of these is lost forever, most part will take more time to be created anew. In a recession, too, the market share may have fallen in importance to the second position on the companys list of priorities, however, with the recovery, management again faces the challenge to retain or increase the market share. In an inreasing number of business segments the competition becomes fiercer. Weaker businesses perish, the stronger become even more aggressive. The traditional sources of capital, lenders and investors are still cautious, which makes it even more important for the company to earn revenues. After a great gap, nothing can be continued where it stopped. In the simplest cases, it needs time to only bring the employees into the pre-crisis condition. In a large number of cases, however, teams are disbanded and building them again may prove to be a very difficult task. Training the staff again takes time ... months, years. The time elapses. The postponed project may now prove to be unnecessary, useless. At least the returns on investments changed, as the competition and substitute products went on. Cutting the marketing and sales budgets means the loss of presence in the market and this needs time to build again. The consequences of the reactive approach to crisis are serious. The companies are in a situation that they have to just forget what is lost and are forced to invest more resources only to raise the business to the pre-crisis level. Not to mention that the competition may have gone further on during the recession period. The post-crisis world is changed, the markets are changed, some of them to such an extent that the company may never be able to return to them Š2Ë. The companies that implemented a number of, or all the most frequently implemented cost reduction strategies in a recession are now facing three biggest problems: the lack of resources, the insufficient profitability of income and the loss of zest in the employees. In a post-recession period, therefore, companies must first aim to find remedy to the consequences of implementing reactive cost reduction strategies in a recession period, in order that they should be able to continue further business. In order to optimize the resources, the primary task for the managements of the companies is to redesign the key business processes and carefully define priorities in order that they should include some earlier profits. It is also necessary that they should change priorities in their work, implement resources where they are needed and when they are needed. The management must not rely on previous assumptions. It is in this phase that the management has to identify and eliminate the losses of all the seven vital resources: time, people, space, energy, knowledge, finances and materials. They should include their employees throughout the company into a formalized continual improvement programme and train them in the fields of efficiency concepts and tools, after which they can plan the next business cycle. In order that profitable income be increased, it is necessary that the company management should continue the process of the income flows analysis and identify the most and the least profitable ones. They should be oriented to the most profitable ones and correct or abandon the least profitable. Here, good acquisitions may also prove to be a good solution, including the acquisition of businesses and the production lines. Every industrial segment accepts consolidation to a certain extent. Agressive promotion and sales with an absolute accuracy in terms of market segments upset by industrial consolidation and change will significantly contribute to achieving this goal and increasing the income profitability. It is in this period that the companies that have survived should pay special attention to customers who were left alone, take the advantage from the customer confusion and help them choose these companies, as their previous or alternative supplier left the market. They should present themselves as the only solution to the customers problems, as the companies that will take care of them and their requirements. A re-assessment of the market will reveal new income flows and new opportunities. The markets under went changes and the company management has to be aware of that; certain markets have even lived through dramatic turmoils and now present an entirely new situation the company faces and has to develop an adequate business strategy for. In order that the zest and enthusiasm in the employees should be awaken again, it is important to know that during the recession, the employees have lost trust into the company and its management. The zest is lost. Hence it is urgent that positive connections and relations with labour force should be re-established. This may be difficult, nevertheless, it has to be done. In order to achieve this, the manager has to face the disturbances the employees have suffered. He has to listen carefully to what his team are saying and observe their feelings. It may take the employee a considerable time to overcome the stress of being made redundant as it results into the loss of trust. It is necessary that steps be taken with a well analysed plan of recovery, before things are left to their own course. The key element is a proper selection of priorities and the provision of resources to make progress with, as well as creating appropriate work conditions in which each employee will have clearly defined goals and tasks, followed by adequate resources necessary in their unobstructed accomplishment. Enthusiasm and collaboration are necessary so that new zest should be born again. Good management will result into trust and enthusiasm building again. Of great help can be the launching of ambitious projects. Instead of only restarting the usual technological, marketing, manufacturing and other business projects, the company management should turn them into the next generation projects, overcoming the previous goals and setting the new goals, which will enhance motivation in the employees. There is a danger in this phase from linking to the infinite costs of the existing, outdated projects that will not bring anything good in the future but will only hinder the growth and development of the company. It is the task of the management to prevent this in that they will devote some time to determining what is currently the best and change the project goals accordingly. It will, of course, be necessary to run new calculations of returns on investments and make adequate adjustments. New decisions made on the basis of new information are the drivers of growth and development in this phase. 6. Proactive approach to cost reduction In order that the described negative consequences of the reactive cost reduction strategies implementation with the onset of the crisis be avoided, the best companies employ a strategically proactive approach to cost management and reduction which allows for steady business doing, without turbulences and negative effects, in both good times and in the times of crisis. In good times, a proactive approach of strategic management and cost reduction ensures companies an adequate stability and readiness for action in the times of crisis without the danger of facing the negative effects of a rash, aggressive, short-term and random, unplanned reduction of costs, the costs that are of vital importance for the company survival, growth and development Š2Ë. The question is: which costs can be reduced? In a planned, proactive, strategic approach to cost reduction the companies will reduce only those costs that are clearly defined as unnecessary from the aspect of the customer value. Hence the strategic cost reduction should be approached from the marketing perspective in that if the management of the company wants to establish what is unnecessary, worthless, dispensable in the company, they have to know the customer perception of the value. In case the company really learns and knows what does not bring any value to customers, it will know precisely what it can get rid of. Otherwise, it will only reduce costs regardless of their importance from the ultimate aspect of business doing and the consequences this act may cause. From the point of view of management as a scientific discipline it is necessary to stress the strategic importance of permanent programmes of cost reduction as opposed to spur-of-the- moment reaction to unfavourable events Š4Ë. Top managers worldwide increasingly adopt this point of view and make decisions that cost discipline, in terms of a continual cost reduction, should be a programme that can even become a core competence of the company. The practice has shown that business doing with successful programmes of permanent cost reduction can result into earning as much as a half of the annual profit due to the very cost reductions. Besides, what is especially important in the conditions of recession is that such businesses stabilize faster in a situation of economic failure or deterioration. Also, companies with a strict cost discipline adapt more easily in the conditions of introducing new technologies in the fields of production or services, as well as in case competition has suddenly become fiercer Š3Ë. The key domains in which the cost reduction methods can be implemented to achieve significantly good results are given by the following cost allocation Š4Ë: Raw materials: 60% Fuel: 6% Labour force: 11% Advertising: 5% Logistics: 9% Taxes: 5% Below are presented the major domains of cost reduction in a manufacturing company Š1,4Ë: 1.Raw materials procurement: Bulk purchase allows for obtaining discounts when buying a larger quantity of raw materials, semiproducts or products compared to their individual prices. Hence it is important to find a most favourable supplier and buy the largest necessary quantity of raw materials, semiproducts and products. Opportunity purchase an opportunity to save by purchasing as you find goods at favourable prices, regardless of the current needs of the company for these particular goods. The disadvantage of this method of strategic cost reduction may be the increased storage costs, hence it is necessary that these costs be levelled with the potential savings achieved by opportunity purchase and that the profitability of such purchase be examined prior to the purchase itself. Make or buy refers to the assessment of costs necessary to produce a product by the company itself and their comparison with the acquisition cost of this same product at other suppliers. The savings are achieved by opting for a more cost-effective alternative. Annual contracts with fixed rates allow for the purchasing of raw materials, semiproducts and products on an annual basis and at a precisely fixed price. In this case, the procurement of raw materials, semiproducts and products is continual, throughout a year, however, at the same, previously contracted prices, regardless of their possible change over a year. The new, changed price will be of effect only for the new customers, not for the company that has an already signed contract with the supplier. In view of the fact that the seasonal price variations are characteristic of a majority of raw materials, semiproducts and products, the largest savings can be achieved by contracting the procurement of a largest required quantity of raw materials, semiproducts and products at the time their prices are lowest. E-procurement this allows for substantial savings via an automation of the processes of identification, evaluation, negotiations and configuration of an optimum mix of suppliers, products and services using modern Internet technologies, which enhances the speed at which the company responds to newly arisen market conditions. By a simple announcement of a tender on the Internet the compa ny can collect a large number of offers and select the most favourable ones. Savings can also be achieved by reducing transaction costs, reducing the costs of storing unnecessary stocks, shortening the time required to respond to the market demands, etc. 2. Logistics: Route mapping refers to exploring possible means of transport of raw materials, semiproducts and products and the selection of the optimum one optimum in terms of costs and the required time. It includes both internal and external transport. The costs are included in the raw material transport from the supplier to the factory warehouse. They can be assigned either to the supplier or to the customer. Furthermore, the transport of raw materials and semiproducts takes place within the factory during the work process itself, which also incures transportation costs. Final products are then transported to large distributor companies, then to retail objects and finaly to the customers. An optimum organization of the entire logistic chain is of substantial importance for the business. Full capacity essential in saving is the transport of fully loaded containers and other means of transport. For example, goods are loaded into 12 ton containers, and a 30% loaded container is never dispatched. 3. Department stores and shops: Low stocks result in automatically low storage costs, less storage room required, less maintenance of this space, less equipment to regulate temperature and other conditions in the warehouse, a smaller number of employees in the warehouse, a smaller number of transport vehicles in the warehouse, lower transportation costs in the warehouse, etc. Facility management refers to permanent savings and cost reduction by introducing an optimum system for handling raw materials, required physical devices and the optimum plan of space arrangement to ensure an unobstructed flow of material. EOQ Economic Order Quantity the value that determines the level of stocks at which the total costs of ordering and storing stocks are lowest. 4. Production process: Manufacturing includes an adequate allocation of jobs, machinery and materials to ensure a costeffective production where there will be no waste, failures, breakages, wastage or unnecessary waste of time caused by a poor organization of the manufacturing process. Automation the development of software industry brought forth new opportunities for permanent business cost reductions in the production process domain. Automation helped improve productivity, increase efficiency, reduce the labour force demand; it allowed for an early identification and correction of errors, safe operations, data collecting for the purpose of achieving better outputs, etc. OEE Overall Equipment Effectiveness refers to a hierarchy of measures focused on how effec tively the manufacturing operation is carried out. The results are presented in a generalized form, thus allowing for comparison between production units of different industries. As such, the OEE measure is frequently used as a key indicator of performance. 5. Packaging: refers to the optimization of the primary and the secondary packagings in order to ensure the safety of the product during the loading, unloading and transport, as well as the product attractivenes itself. Savings in the costs of packaging can be achieved in different ways, taking into account all the parame tres, such as the product shape and size, its toughness, waterproof qualities, user-friendliness etc. The savings in this domain are primarily achieved via the packaging design and the choice of materials. 6. Energy, fuel and water cost reductions in this domain are possible to achieve by a correct selection, monitoring and optimization of the equipment used in this domain: Engines Lighting Compressors (boosters) Fuels Recycling Waste water management 7. Information management: Company resources management with the rise of new technology it is today possible to manage the company resources in an optimum manner, by installing the software such as Oracle, BAAN, SAP. They provide accurate information in the following areas: material planning, production planning, finance planning, sales planning, on the basis of which it is possible to select the best solutions. 8. Human resources: Outsourcing a significant source of permanent strategic cost reductions today, primarily reflected in the savings in fixed costs, maintenance costs, legal obligations, an easy change of partners, lack of restraint to one geographical region. The following business activities are most frequently outsourced to use the benefits of a permanent cost reduction: personnel services, bookkeeping services, manufacturing services. One of the key elements of success in cost reduction is that this idea has to be acceptable. The idea is accepted when everybody who has to imple ment and support the idea are included in its generation and evaluation. 7. Conclusions and recommendations Formulating reactive cost reduction strategies brings short-term effects. Urgent cost reductions are useful in reducing the money outflows, however, if the structural changes are not implemented in the manner in which companies generally function, they will not last. The results are often poorer than expected and the majority of these strategies will not result in a permanent, that is, sustainable cost reduction. Besides, history shows that a considerable percentage of companies that cut costs during a recession by cutting the major cost incurrers discover that their costs are even higher in the post-crisis period than they used to be before. The most successful companies implement the strategic cost reduction and increase profits before the crisis and change their method of business doing in order that they should become even more efficient when harder times come. The companies that are proactive in their approach to cost management and reduction in both bad and good times, achieve significantly better long-term outcomes in comparison with those whose approach to economic cycles is reactive. REFERENCES Š1Ë Cost Reduction and Control Best Practices: The Best Ways for a Financial Manager to Save Money, IOMA, 2006 Š2Ë Hart R., Cutting Costs Effectively in Recession and Recovery: Finding Hidden Potential, Making Trade-Offs and Managing the Process, Recession Storming Media, 2009 Š3Ë Ilić B., Milićević V., Menadžment troškova - strate gijski okvir, FON, Beograd, 2009. Š4Ë Milićević V., Ilić B., Effective Cost Management and Customer Profitability Measurement, Management, br. 53, Year XIV, FOS, Belgrade, December 2009 Š5Ë www.shumaonline.com, december 2010 Growth Dynamics and Development Problems of Small and Medium Enterprises UDC: 330.34:334.012.63/.64 ; 005.334 Ivan Stefanović1, Dragan Milošević2 1Petroleum Industry of Serbia NIS a.d. Novi Sad Ivan.Stefanovic¿NIS.RS 2Business Economy and Entrepreneurship College, Beograd Small and medium enterprises (SMEs) have a great significance for developed market economies and represent the basis of their economic development. They make around 99% of the total number of enterprises within these countries and employ more than two-thirds of the available workforce. This paper analyses the growth and survival of SMEs and the problems of their development. In the end of the paper, the marketing orientation as a foundation for steady growth and development of SMEs is emphasized, as well as the need for implanting the marketing concept into cultural norms of these enterprises. 1. Introduction There are many categorizations by which small and medium enterprises (SMEs) can be defined. These categorizations can be quantitative, as well as qualitative. Nevertheless, the main criterion for the size categorization of an enterprise is quantitative and is focused on the number of employees. According to this categorization, there are: (1) micro enterprises (1-9 employees), (2) small enterprises (10-49 employees), medium enterprises (50-249 employees) and large enterprises (250 or more employees). SMEs, which represent the first three categories listed, i.e. up to 249 employees, are the main force of the development of market economies. They usually make a large majority of the total number of companies, which makes them the fundamental driver of entrepreneurship and the whole economy. This is the main reason why it is necessary to understand more comprehensively the manner in which they operate, as well as their growth dynamics and development problems. In-depth knowledge on these issues will greatly increase the chances of long-term growth and development of SMEs, and therefore the whole economic system in which they operate. 2. The importance of SMEs in a market economy SMEs are a very important economic segment of each country and their primary role is similar throughout the world. Although not a large number of employees are working in small or medium enterprises, a large number of these enterprises causes that the majority of workforce within each country is working in an enterprise of this size. This means that SMEs do contribute significantly to the total employment rate. In addition to this role, their other role can be seen through their entrepreneurial activities and contribution to raising the overall level of competitiveness. This is accomplished by their massiveness, as well as their increased offer of competitive products and services Š16Ë. SMEs are also very important in international context because their main characteristics, such as flexibility and networking ability, are enabling them to be a strong competitive threat to a number of large multinational and transnational corporations in various aspects of their operations. Because of their size, SMEs are usually more adaptable and better prepared for the changes in their environment. Their proximity to markets enable them to obtain information regarding their environment in a much more simple manner., which allows them to respond more promptly in comparison with their larger counterparts and make all the necessary changes in their organization and processes in a timely manner Š24Ë. SMEs are one of the driving forces of economic development in already developed market economies. They stimulate initiative, inventiveness and entrepreneurship, while their characteristics enable them to be much more flaxible than large companies, which is one of the main preconditions for adaptability to changes in the environment. These are only some of the reasons why a large number of SMEs exist in all developed countries, thus indicating their extreme importance. In the year 2005, within the EU-27, almost 20 millions of enterprises were active within the nonfinancial sector, out of which 99.8% were SMEs. Their share in employment was 67.1% of available workplaces at that moment, while their value added amounted to 57.6% of the total value added. In 2005, SMEs within EU-27 employed 4.3 persons on average. This average had significant variations between the member countries, e.g. the highest average of 12 employees per SME was in Slovakia, while the lowest average of 3 employees per SME was in Czech Republic (data from 2004) and Greece Š22Ë. Some of these indicators are illustrated in Table 1. Σ SMEs Micro 1-9 Small 10-49 Middle 50-249 Large >249 terprises, 63% of the total employment, while at the same time provided over 40% of total exports and 60% of total imports of the non-financial sector. Viewed from the prism of these data, it is clear that SMEs are the most profitable segment of the Serbian economy Š13Ë. In 2007, SMEs (excluding entrepreneurs) accounted for 99.29% of the total number of employees. These data clearly emphasize the great importance of SMEs for the Serbian economy. Table 2 shows some Serbian enterprise key indicators according to their size. Number of enterprises (in millions) Share in percents (%) Number of employees (in millions) Share in percents (%) Value added (in billions of euro) Share in percents (%) Workforce productivity (1000 euros per employee) Share in percents (%) 19.65 19.60 18.04  100.0 99.8 91.8 1.35 6.9 126.7 85.0  100.0 67.1 37.5 29.6 26.1 20.6   100.0 57.6 20.9 18.9 0.21 1.1 21.3 16.8  17.8 42.3  36.4 100.0 86.1 29.9 70.7 38.7 91.5 44.8 105.9 0.04 0.2 41.7 32.9  42.4 54.4 128.6 Table 1. Enterprise key indicators according to their size within the nonfinancial business sector in EU-27 in 2005 Š22Ë It ought to be noted that the number of SMEs within the EU-27 in 2007 increased to a lesser extent and now amounts to 20,409,000 which is an impressive percentage when compared to 43,000 large enterprises Š1Ë. Based on these facts, one can easily comprehend the great importance of SMEs for the EU economy, primarily due to their share in the total number of enterprises. This is why SMEs in the EU are usully called the backbone of economic development. The importance of SMEs for the overall economy of Serbia is also high. The SMEs sector is becoming an increasingly important segment of the economy during the structural reforms implementation, specificially its function of reviving the overall economic growth, job creation and poverty reduction. SMEs are therefore very important for the success of the transition process in Serbia, although the fact is that the economic results of the transition are far from expected. The SME sector in Serbia is the most profitable segment of the economy. In 2006, SMEs (including entrepreneurs) accounted for 99.7% of the total number of en Total Number of enterprises 84,109 Micro 1-9 71,065 Small 10-49 Middle 50-249 Large >249 9,874 2,572  Number of employees Income (in millions of RSD) Gross value added (in millions of RSD) 1,097,913 146,307 203,091 271,543 5,079,482 886,631 1,213,891 1,013,667 476,972 1,965,2 1,062,559 120,500 200,105 226,341 515,611 Table 2: Enterprise key indicators according to their size within Serbia in 2007 Š13Ë The importance of SMEs clearly indicates the need for studying their growth and development as the basic dimensions of their long-term survival. Before doing so, it is most important to comprehend that the growth is a quantitative and development is a qualitative category. Knowledge on the dynamics of these categories will greatly facilitate the process of their control, which will contribute to the reduction of the rate of their deterioration. 3. The growth and survival of SMEs Growth and survival are the main problems faced by SMEs. The nature of small dimensions of these enterprises implies the need for growth as a basic condition for their survival and further development. Simon and Bonini Š23Ë have studied 500 largest companies in the U.S. in the period 1954-1956 and concluded that there was no difference in growth rates between companies of different sizes. Evans Š5, 6Ë has, however, come to a completely opposite conclusion. He has found that the growth rate negatively correlated with the size of enterprise, i.e. small companies grow faster than larger ones. This conclusion has been also obtained by Hall Š8Ë, who observed only manufacturing firms. The survival of companies is also a topic that has obtained a particular interest by scholars in recent years. The results of the research into manufacturing companies have shown that the survival rate of newly established companies is higher than the rate of their deterioration Š3Ë. A similar conclusion came from Phillips and Kirchhoff Š19Ë, who have found that the survival rate increases along with the size of an enterprise and its age. They have also found that this rate differs between different industries, as well as between different sizes of firms. Headd and Kirchhoff Š9Ë conducted a study in the U.S. in the period 1992-2002 and came to many conclusions that are of great importance for understanding the growth dynamics and survival of SMEs. We highlight a few of them: 1. The number of SMEs in which the increase in empoloyees is recorded is similar to the number of SMEs in which the decrease in employees is evident. 2. One cannot speak of the regularities from the empirical point of view according to which SMEs are rapidly growing in their first years of existance, after which the decline of this rate takes place. 3. The survival rates of SMEs are similar in different time periods. 4. Significant correlation between industries that have a high rate of growth and SMEs within these industries that also have a high rate of growth has not been discovered. 5. Industries with a large number of fast growing SMEs also have a large number of SMEs that are shrinking rapidly. All these facts reflect the growth and survival of SMEs. Nevertheless, in addition to the growth dimension, it is very important to take a closer look on the development dimension of SMEs, i.e. the problems faced by SMEs during their development. 4. Development problems of SMEs The problems faced by SMEs during their functioning and development are numerous. Due to their specific nature, they are far more sensitive to the occurence of acute crisis situations than their larger counterparts. Thus, the need to emphasize some of the common problems they face is desirable. When problems are known, as well as their causes, the decision-making process regarding management actions that will contribute to avoiding or solving the issue an stake, is far easier. It has been concluded in many studies that the two primary causes of SMEs bankruptcy are the lack of adequate managerial skills and lack of financial resources Š26Ë. These are two main problems faced by SMEs in all market economies, which among other things supports the fact that SMEs need external support, i.e. outsourcing, primarily in the form of information and knowledge related to various aspects of the firms operations (management, finances, marketing, production, etc). In other words, in contemporary conditions, SMEs are often not capable of developing and acting independently in the market. They ought to have their own core competencies they must continue to develop and thus become competitively superior in their respective business. They also need to establish different forms of cooperation with other individuals, companies and institutions in order to achieve the set objectives. However, the survey that was conducted during November and December 2006 in the EU-27 on a sample of 16,339 SMEs revealed different results Š25Ë. This research has indicated that limited purchasing power (46% of the sample), inadequate legislation (36% of the sample), lack of workforce (35% of the sample), and high labour costs (33% of the sample), are the most common problems that SMEs face. In the fifth place, inadequate infrastructure has been revealed (23% of the sample), while the lack of financial resources (21% of the sample) has been found in the sixth place, which is totally atypical when it comes to development problems of SMEs. The problem list continued with new technologies implementation (17% of the sample), new forms of organizing implementation (16% of the sample), and finally the lack of adequate managers (11% of the sample). Legend: 1 population purchasing power; 2 inadequate legislation; 3 lack of workforce; 4 high labor costs; 5 inadequate infrastructure; 6 lack of financial resources; 7 new technologies implementation; 8 new forms of organizing implementation; 9 lack of adequate managers. Figure 1. Development problems of SMEs within EU-27 in 2006 for SMEs the Agency On the other hand, research studies conducted in this country show that the lack of financial resources is one of the main problems of SMEs development; e.g. research conducted by and Entrepreneurship Development in 2006 in order to determine the major problems of SMEs and entrepreneurs in Serbia Š4Ë. The study included 1,404 respondents who provide employment to a total of 14,485 people, which makes 13 employees per firm on average. The results have shown that the biggest problems for respondents are: lack of financial resources (38.5%), legislation (27.5%), lack of market information (9.4%), lack of skilled labour (9.4%), non-compliance with the standards (7.1%), lack of information on technologies (4.1%). Legend: 1 lack of financial resources; 2 legislation; 3 lack of market information; 4 lack of skilled labour; 5 non-compliance with the standards; 6 lack of information on technologies Figure 2. Development problems of SMEs within Serbia in 2006 Š4Ë Based on the presented results, we conclude that the problems faced by SMEs are numerous, but mostly generic, i.e. these problems are inherent in the very nature of SMEs. Nevertheless, in addition to the above mentioned problems that represent the specific hindrance in SMEs development, the evident lack of marketing orientation is also a factor that contributes to the growth and development slowdown. All companies, regardless of their size, need to adopt the marketing concept as a basis of their growth and development. 5. Marketing orientation as a basis of growth and development of SMEs Marketing orientation is a powerful source of sustainable competitive advantage for the following reasons: it is difficult to imitate all of its specifics, the firm focuses on finding opportunities for growth, and reduces the time delay between identifying and exploiting the growth opportunities Š15Ë. Implementation of the marketing orientation in the firm and its fostering require leaders to pre viously institutionalize the values and behaviours that are inextricably linked to marketing orientation Š14Ë. In other words, marketing orientation must be deeply embedded in the organizational culture in order to come to life in practice. In this regard, many authors advocate marketing orientation as a set of values and beliefs that are deeply incorporated in the culture of an organization. These values and beliefs direct the behavior of all organization members Š18, 27Ë, i.e. they are part of the permanent orientation of a firm towards creating and delivering superior values to its customers Š17Ë. Relying on the concept of organizational culture Š20, 21Ë, numerous scholars have observed the marketing orientation as a critical aspect of culture within the company Š10, 7Ë. Marketing orientation enables organizations to develop skills that will help them define their internal processes and link them with the environment. This will allow for them to become more competitive due to the establishment of connections with their customers, distributors and suppliers Š2Ë. These organizations fully understand the importance of using information on customers and competitors when forming their own strategies. Thus, they are able to create a better offer and deliver more value to their target markets than their competitors Š11Ë. Considering that the market orientation is a distinctive type of resource within the organization, it enables the organization to develop a specific competitive advantage Š14Ë, which is hard to imitate, causing it to become sustainable competitive advantage Š12Ë. Based on aforementioned, it is quite clear that marketing orientation is the basis of growth and development of all enterprises, especially SMEs, which are far more sensitive to the market changes because of their size. Therefore, the pressure toward firms to implement marketing concept in all their processes actually originates from the increased level of competition in the market. Conclusion It is clear today more than ever that it is virtually impossible to achieve long-term economic position internationally without strong SMEs. Their outstanding entrepreneurial role makes them a solid basis for the development of a countrys overall economy, through attracting foreign direct investments, employment reduction, increase in GDP and exports, as well as many other things. The importance of SMEs is primarily reflected in their percentage of the total population of firms; e.g. in the EU over 99% of all enterprises are SMEs. 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H., Jayachandran, S., Bearden, W. O. (2005), Market Orientation: A Meta-Analytic Review and Assessmentof Its Antecedents and Impacton Performance, Journal of Marketing, 69(2), 24-41. Š16Ë Milošević, D., Stefanović, I., Miletić, S. (2009), Metode formiranja i pravci razvoja MSP-a u savremenoj tržišnoj ekonomiji, Zbornik apstrakata, V Majska konferencija o strategijskom menadžmentu, Zaječar, 29-30. maj 2009. Š17Ë Narver, J. C., Slater, S. F. (1990), The Effect of a Market Orientation on Business Profitability, Journal of Marketing, 54, 2035. Š18Ë Noble, C., Sinha, R., Kumar A. (2002), Market Orientation and Alternative Strategic Orientations: A Longitudinal Assessment of Performance Implications, Journal of Marketing, 66(4),2539. Š19Ë Phillips, B., Kirchhoff, B. (1989), Formation, Growth and Survival: Small Firm Dynamics in the U.S. Economy, Small Business Economics, 1(1), 6574. Š20Ë Schein, E. H. (1984), Coming to a New Awareness of Organizational Culture, Sloan Management Review, 26(Winter), 316. Š21Ë Schein, E. H. (1996). Culture: The Missing Concept in Organization Studies, Administrative Science Quarterly, 4(2), 229240. Š22Ë Schmiemann, M. (2008), Enterprises by Size Class Overview of SMEs in the EU, Statistics in Focus, Eurostat, Luxembourg, 31/2008. Š23Ë Simon, H., Bonini, C. (1958), The Size Distribution of Business Firms, American Economic Review, 58, 607617. Š24Ë Stefanović, I., Milošević, D., Miletić, S. (2009), Significance and Development Problems of SMEs in Contemporary Market Economy, Serbian Journal of Management, 4(1), 127-136. Š25Ë The group of authors (2007), Survey of the Observatory of European SMEs, The Gallup Organization, Hungary. Š26Ë Watson J. (2003), The Potential Impact of Accessing Advice on SME Failure Rates, Proceedings of the 16th Annual Conference of Small Enterprise Association of Australia and New Zealand, Ballarat, 28 September-1 October 2003. Š27Ë Zhou, K., Yim, C., Tse D. (2005), The Effects of Strategic Orientations on Technology and MarketBased Breakthrough Innovations, Journal of Marketing, 69(2), 4260. Strategic Management Concept and Market Restructuring as a Response to New Challenges of the World Financial Crisis1 UDC: 005.591.4:339.13 ; 338.124.4(100) Ivana Domazet, Ivan Stošić, Jovan Zubović ivana.domazet¿ien.bg.ac.rs The negative effects of global financial and economic crises foster the application of modern concepts of strategic management. In fact, radical changes of business environment, which are manifested by numerous discontinuities and turbulent changes of business environment, justify the implementation of significant structural changes in principles of business activities. In addition, the application of strategic management concepts, within the necessary structural changes, represents a rational analytical framework to challenges from the environment. In order to achieve distinctive competitive advantage and satisfaction of diminishing consumer demands, it is necessary to implement a comprehensive business restructuring process, to a large extent based on market restructuring. Specifically, market restructuring, which includes a series of structural changes in market orientation and marketing activities, may provide a new strategic leverage, that is, through innovation of the business portfolio, the structure of the target market and marketing mix instruments, contribute to the survival and further growth and development of numerous business entities. 1. Introduction The current global financial crisis has led to many changes in the ways macroeconomic policy is implemented, however, also in the ways the business of numerous econimoc entities are conducted. Certain solutions, impossible only one or two years ago, have today become a reality. Simultaneously, numerous verified solutions, successfully applied in the past period, do not ensure favourable results today. Thus, for example, in the USA, the country that was a champion of market fundamentalism, the state became a co-owner of a number of leading companies (and banks) through powerful financial injections, and the neutral economic policy was replaced by a vigorous interventionism in many an economic sector. By June 2009, the USA intervened with resources that amounted to 6.3% their GDP, Great Britain spent as much as 17.7%, and Germany intervened with 4.2% of its gross product Š8Ë. Starting from the analysis of different concepts of business planning and experiences in carrying out restructuring processes, the aim of this paper is to provide an answer as to how companies in the conditions of global economic crisis implement modern concepts of strategic management and market restructuring to proactively and successfully respond to the shocks coming from external environmens, that is, how companies can ensure success in business in these new market conditions without implementing the standard methods of cutting on costs, reducing the number of employees and sales of their property. Namely, one of the starting hypotheses in this paper is that market restructuring that entails a succession of structural changes in the market orientation and marketing activities is one of the key solutions in resolving a plethora of problems arising due to negative effects of the world financial crisis in the modern conditions of business operations. Since the development of this country in the period to come should be based on the creation of a more efficient economic structure in which the production of exchangeable goods (especially manufacturing industry, high and medium-high technologies characterised by higher added value) will be assigned a more important role, it is important that a number of structural changes be conducted in the domain of market-oriented business of the economic entities in Serbia. In view of all the above listed, the second chapter of the paper will present a detailed analysis of the basic concepts of planning the development behaviour of a company, as well as the characteristics of the strategic management concept. The third chapter of the paper focuses upon the impact of the world financial crisis on the methods of business planning and especially on designing the access to the market. The current conditions of business doing in which the vital interests of many a companys survival is endangered require prompt and concrete proactive actions to be applied. Furthermore, structural changes must not, according to the authors, be restricted to only defensive activities; on the con 1 this paper is part of research project under the codes 179015 (Challenges and prospects of structural changes in Serbia: Strategic orientation of economic development and adjusting to the EU requirements) and 47009 (European integrations and socio-economic changes in the economy of Serbia on its path to the EU) financed by the Ministry of Science and Technological Development of the Republic of Serbia. trary, they must primarily be oriented towards the implementation of offensive changes in business, largely based on market restructuring, which is the topis of the fourth chapter of this paper. The fifth chapter is dedicated to the problems of defining the company business as basis for implementing a market restructuring process. Finally, in the conclusion chapter, the authors stress the importance and role the market restructuring can and must play in the modern conditions of business operations in which the negative effects of the world financial and economic crises are still sorely felt. 2. Evolution of business planning concept The concepts, methods and techniques of the developmental behaviour of the company evolved over time. Under the impact of numerous factors, primarily of the changes in the environment and accumulated knowledge and experience, the formal system of planning has gradually changed and improved Š7Ë. The literature (e.g., Day Š3Ë, Ansoff Š1Ë, Todorović Š15Ë) dealing with this topis often quotes the four phases in the planning system evolution: budgetary planning long-term planning strategic planning strategic management Budgetary planning was primarily oriented towards creating a short-term, annual financial plan budget, within which revenues, expenditures and investment resources were projected. In case a longer time period was taken into consideration, a unilateral extrapolation of the existing trends was made. Alongside the annual financial plan, tactical plans for individual functional sectors were devised. This model of planning does not mean the absence of strategic thinking. Strategies, however, are only implicitly present, which makes the concept acceptable mainly in the conditions of steady and easily predictable market environment, primarily in case of small, functionally organized companies. In the 1960s and at in the early 1970s, a large number of companies in the USA and in other developed countries abandoned the budget-based planning system in favour of the long-term planning concept. The longterm planning system allowed for an insight into financial implications of the existing trends. Nevertheless, plans were considerably shorter-termed than anybody cared to admit. The prime attention was paid to the year to come, since the first year of the long-term plan was at the same time strictly budgeted. Besides, per formance measuring in the first year was a basis for the majority of awards and recognition for the management. Later, everything is much easier and deviations from the plan could be justified by numerous reasons. Massive weaknesses of this business planning system brought forth the development and implementation of a new concept strategic planning. The long-term planning based on long procedures and on the assumption that the future will be only a continuation of the past trends was one of the first victims of dicontinuity in the development, characteristic of the mid-1970s. First the petroleum shocks, then changes in the raw material prices, the shortages of certain materials, fierce inflation and recession and the rise of interest rates are only some of the phenomena characteristic of the environment in that period. In response, and for the purpose of adapting to newly emerged conditions of business, the business planning system underwent certain changes the focus of which was shifted from growth management to a centralized resource management. In this context, the focus of activities was on: the analysis of the existing business and, primarilly, market situation and the assessment of competition (through a precise identification and assessment of opportunities and threats from the environment, and the assessment of strengths and weaknesses of the company as well as its comparative advantages in comparison with the competition), the generation, discussion and assessment of numerous strategic options, devising strategic market plans and setting the tasks for individual SBJs, and not in a uniform way as was the case in the long-term planning system Š10Ë. The last, fourth phase in the evolution of the developmental planning system is strategic management meant to overcome certain weaknesses, i.e., improve the strengths of the preceding planning concept. The emergence of strategic manageent is dated in the 1980s when the environmental challenges increased Š2Ë. In the first place, in the conditions of slow economic growth manifested in this period, the pressures of competition has become heavier. Simultaneously, technological progress, market globalization, deregulation in external economic relations, reduced role of the state, high energy costs, changes in demographic factors and numerous other factors have become new challenges. All these result into a fierce and complex competition, where achieving and maintaining competitive advantages becomes really hard to accomplish. In order to overcome the perceived weaknesses and face the increasing challenge, the planning system evolved towards focusing upon finding competitive advantages. This primarily means recongizing the changes in the key factors of business success, in the needs of in dividual market segments, in competition strategies and finally, in the managers demands. Certain authors, Ansoff Š1Ë in the first place, highlight the importance of strategic position management and competence planning, that is added to strategic planning. With the change in the turbulent level, it is necessary that new competencies of the company be planned. It is in this context that the importance of strategic issues management (i.e., the timely response to an identified problem, independently of the regular strategic planning cycle) is stressed, together with the management via weak signals or management on the basis of surprise Š16Ë. The essence of strategic management is in fact the perception of effects of different present decisions in the light of their possible and likely consequences in the future. It includes avoiding identified dangers and orientation towards exploiting the existing strengths and competences of the company. Naturally, this does not imply that strategic management is only a method of risk avoiding or minimizing. On the contrary, it includes risk acceptance. This system of planning tends to allow for making decisions which will in turn provide an adequate response to unpredictable future, on the basis of the best information available at the moment. Hence the basic characteristics of the strategic management concept are the following Š3, pp.3,5. P 11Ë: External orientation The primary responsibility of strategic planning lies in its orientation towards an entire and direct environment as well as towards maintaining the same level of business competition with anticipated change. Strategy formulation Resolving problems the company encounters is based upon a broad implementation of strategies, most attention being paid to the issues of strategy formulation and selection of strategic options. Development of analytical methods meant to enable strategy generation, structuring and evaluation Especially significant progress has been made in the domain of planning techniques and concepts (the product and branch life cycle concept, experience curve and economy of scope concepts), analytical models of planning (portfolio, five factor model and technique scenario) and analytical techniques for strategic issues and assumptions identification (the concept of strauctural analysis of branch strategy groups, etc.). Orientation to action Formal plans, analyses, prognoses, and set tasks will be useless without an adequate implementation. Having in mind that the plan implementation is the competence of operations managers, the planning process itself has to develop via a combination of top-down and bottom operations level-up approaches, so that a full understanding of agreed plans and a motivation of operations managers for their execution are ensured. Basically, strategic planning here is closely related to the current business operationsand orchestration of all the activities in the scope of strategic frameworks set on the company level. 3. Effects of world financial crisis upon business planning and business operations concept The crisis present in certain world financial markets culminated in the first half of 2008, when the largest and most important exchange markets collapsed and almost all inter-bank short-term crediting ceased. The financial markets were dominated by lack of trust, in many cases even by panic. Evaluations differ, however, it appears that the major causes of the crisis lie in the collapse of real estate market in the USA where it was not possible for the creditors to get their money back. The spread of the crisis was especially intensified by an entirely liberated USA financial market in which the trade in the socalled financial derivatives (performed by banks, investment funds, hypothecary and insurance companies and similar financial institutions) was not regulated in an adequate manner. The negative effects of the crisis in the USA promptly spread to other financial markets throughout the world as well as to the economies of leading countries. This resulted in the bankruptcy of many a respectable financial institution and banks, or in their recapitalization by the state sector. In almost no time, the consequences of the global financial crisis spread to the real sector and were reflected primarily in the fall of the effective current demand for a large number of products and services. The result of these negative trends in the financial and real sectors was that the economies of practically all the leading world economies have consequently suffered recession. Towards the end of 2008, the consequences of this crisis were present worldwide and were felt by actually all the players on financial markets, by the economies and finally, by citizens and employees. Hence the governments of many countries undertook various measures to exit the crisis, and the state intervention in the finance sector became evident again, after many years, even in the USA where the concept of neoliberalism and abandoning the role of the state in economy were for years axiomatic in the economic policy implementation. At the beginning of 2009, the negative effects of the global economic crisis spread to the economy and finances of Serbia, too. They are primarily reflected in the export-oriented production, financial market trends and budget revenues. Over time, the negative effects of the global financial crises have increased and strongly affected the ovarall economic trends and the business operations of the Serbian companies. A large number of companies encounter the placement crisis, insolvency, problems in debt repayment, and the cases of discountinuing production and massive redundancies are no longer rare. Table 1. Indicators of basic economic trends in Serbia in 2008-2010 period (indices, previous year=100) Social product fixed prices 2002. Physical scope of production Industry Agriculture Construction industry Wholesale and retail trade 105.5 101.1 108.5 104.2  96.9 87.9 101.0 80.1  101.51) 102.9 98.31) 88.11) Retail trade fixed prices 106.6 88.4 99.6 Export trade Exports in USD Imports in USD Empolyees Customer prices end of period Average real earnings total 124.3 124.0 99.9 108.6 103.9 76.0 70.7 94.5 106.6 100.2 117.4 104.2 95.1 110.3 100.7 1)Estimate for 2010. Source: RSO KC 10.29.12.10 After the recession that was evident from the end of 2008 and over the entire 2009, the Serbian economy records a slight recovery and the first signs of exiting crisis, nevertheless, the situation is still far from desired. The indicators of basic economic trends in Serbia in the 2008-2010 period are presented in Table 1. The level of domestic demand is still rather low, which with the problems of insolvency and of an exceptionally long period of receivable collection limits the chances for a more successful business of a large number of econimic entities. Simultaneously, the trends on the labour market are still unfavourable and no visible positive trends have been observed so far. The existing global economic crisis brought forth the implementation of the concept of intensive change in a companys business planning and business operations, in resposne to environmental shocks. Business planning, based on the concept of gradual and incremental transformations gave way to the concept of radical change in which the appeals for intensive restructuring processes are dominant. Restructuring processes meant to bring a crucial change of the entire anatomy and physiology of the company in a rather short period proved to be extremely painful. Namely, in the modern conditions of changed business environment, numerous turbulent changes and discontinuities, change in customers habits, fierce competition, etc., a radical move is necessary to change the so far prevailing method of company establishment and operations. A significantly large number of companies have tried to resolve problems through organizational change (pri marily through the employee number rationalization) and through financial restructuring. Unfortunately, the steps towards offensive changes in the strategy of the company in which the market restructuring processes are to occupy a central position, are largely missing. 4. Market restructuring as response to new challenges One of the evident effects of the global world devastation is an intensive degradation of business in numerous national companies that were forced to reduce placement of their products (services) and even withdraw from numerous world markets, often reducing their production to only 40-50% of capacities installed. All this has had negative effects upon the overall economic trends in Serbia, especially in 2009 and even in 2010. The global economic crisis has had a dramatic effect upon the Serbian economy. Following a succession of years of dynamic growth rates, based largely on consumption (instead on investments), a relatively high inflow of capital from privatization processes, and an ever increasing number of credits and growing indebtedness, the world crisis induced a fall in the economic activity, which in turn resulted in the rise in the already high unemployment rate. The existing key econimic problems of Serbia are primarily found in the real sector of economy, in inadequate structural changes as well as in insufficient level of company restructuring and modernization of production capacities in the first decade of the 21st century. A specific problem is that the development of exchangeable goods was neglected during the period of intensive transition changes (after 2000). A large number of real sector companies remained stuck in the production of their traditional, at best cosmetically innovated products that, viewed from the global market point of view, are technologicaly obsolete in numerous cases and incompatible with the changed market requirements, etc. The structure of offer is such that it does not stand any chances even in normal market conditions, and even less so in the conditions of exceptionally fierce marker relations that gradually, but inevitably, gain in importance in the cases of extreme market conditions. According to the assessments of the European Bank for Restructuring and Development (EBRD) for Serbia at the end of 2020 Š6Ë, the rate for the company restructuring indicator remained on a low level of 2+ and is the same as in 2005, the evidence that there has been no progress in this field in the last five years. A slow company restructuring is a major reason for a slow dynamics of industrial production and of a very limited change in the scope and structure of Serbian exports. A potential solution can be a process of market restucturing of companies, since the company in market economy has a value only on condition it has a share in the market and is capable of making profit in a given business environment. Hence it is desirable that new strategic leverage is ensured through market restructuring, i.e., that the improvements in the business portfolio, in the market structure and a combination of marketing tools be employed to improve the market position, i.e., the value of the company. Consequently, market restructuring should be an indispensable component of a broader process of the companys response to negative effects of the world financial crisis. In addition, in the process of implementing extensive structural changes in the comapny, market restructuring has to be a starting point. Namely, the method of overcoming the problem and change implementation in the domain of market restructuring will largely precondition the flow of management, organizational, production and financial processes. Such an attitude is in the first place conditioned by the fact that the processes of market restructuring best mirror the role of marketing and set up marketing-based business operations. Marketing means the market analysis and customer needs satisfaction, and these have to be identified already in the first step. Without a marketing-based business it is not possible to satisfy the market demand, let alone ensure competitive advantages Š12, p.121Ë. Market restructuring is oriented towards market redefinition, towards the business sector, towards offer restructuring, change in the marketing strategies and the change of the marketing role in the mix of business functions. All these are predominantly meant to radically improve the effectiveness of business operations, satisfy the market demand and achieve competitive advantage. The market restructuring strategy entails the defining of basic methods to make the company flexible in meeting the needs of the environment and achieve competitive advantage in a redefined market, business sector and/or a changed busines portfolio, through a succession of structural changes in the market orientation and marketing activities. It is the formulation, selection and implementation of these changes that make the core of a successful market restructuring process implementation. This is an extremely complex set of issues, especially in view of the negative effects of the world financial crisis and the conditions in the economic environment of Serbia, however, also of the actual situation in companies that were not adequately prepared, either managerially or technologically, for new, crisis-characterised, business conditions. It is in view of the number of problems and barriers the national companies encounter especially in the conditions of the negative effects of the world economic crisis that a need emerges to implement numerous structural changes. This is especially important in case of companies undergoing problems or business crisis, with their competitiveness in business being endangered. In accordance with the world practice, changes should be predominantly oriented towards: the company restructuring, therefore it is necessary that the strengths that define the present and future characteristics of the business milieu in the branch should be anticipated and analysed. The condition of competition in a branch depends on five basic factors, namely Š11, p. 45Ë: intensity of competition, possibility of a product substiture emergence, conditions of access, negotiating strength of customers and the negotiating strengths of suppliers. 1. changes in the companys business strategy oriented towards the transformation of the found, often obsolete business portfolio structure; 2. search for new target markets, market segments and market niches; 3. accelerated development of new and adaptation of the existing products and production structure; 4. product and business quality improvement based on the TQM paradigm, reengineering activities oriented towards the operations costs rationalization, e.g., through the JIT (Just-In-Time), CTR (Cycles Time Reduction), etc. Permanent efforts should also be made towards establishing modern organizational structures, rationalizing the number of employees, improving the employee motivation and care about the key personnel of the company (human resources), openness towards new initiatives, learning organization concept-based changes, etc. All the above said proves that the issue of business restructuring has to be approached in a planned manner and highly scrupulously and that a developmental behaviour of the domestic companies should to a higher extent be based on the modern strategic management practice, including the business restructuring strategies. A complex process such as market restructuring should be implemented according to a plan, with an aim to minimize external unfavourable impacts coming from the business environment, stressing the high internal strengths of the company. The change in the market restructuring may be conditioned by Š15, p.68Ë: stagnation or disappearance of the existing target markets; shifting the boundaries of the critical success factors; erosion of competitive advantages; change in certain technological and input supply factors; emergence of new competition; development of new markets, etc. The structure of competitive environment directly affects the selection of orientation, method and rate of A cummulative strength of these forces determines the profit potential of the branch. It ranges from intensive, in branches such as software industry, telecommunications, recycling, to medium, in branches such as field servicing and equipment, refreshment drinks and drugstores, to textile industry where there is no space for high cash returns. On a competitive market, manouvring for the purpose of finding a better position is unlimitted and an access to the branch is rather easy. This type of industrial structure, however, offers poor chances of a long-term profitability. The weaker the collective forces, the stronger the opportunity for a more superior individual characteristic. The knowledge of the fundamental sources of competition pressure creates an opportunity to perform the preparatory activities for the company management who will define the strategic programme of work in the conditions of unfavourable market conditions. The strategic programme highlights the critical strengths and weaknesses of the company, prompts the positioning of the company within the branch, discovers the sectors where strategic change may prove most lucrative and highlights the points where economic trends are most promising, whether as opportunities or as threats. The manager creates the action plan that can include: Company positioning so that the best defence from competition forces be ensured; and/or Impact upon the balance of forces through strategic moves, whose task is to improve the company position; and/or Anticipating change in environemental factors in hope that the selection of an appropriate strategy for a new competition balance will help surprise competition. The first approach takes the branch structure as a given and adjusts the strengths and weaknesses of the company to it. Strategy can be viewed as building a defence from competition as well as searching for a position within the branch where the forces are weakest. The knowledge on the companys competences and the effects of competition factors will help identify the sectors in which the company should confront the competition, as well as those it should avoid. In case the company is a manufacturer with low production costs, it may choose to confront powerful buyers, provided they are not sold the products subject to competition, i.e., it may reduce the threat from a product substitute. When the forces driving the competition are defeated, the company may think of the strategy which is offensive in nature. Innovations in marketing may improve the identification of the brand, or make the product diverse from any other. Capital investments into large scale capacities or vertical integration affect access barriers. The balance of forces is partly a result of external factors, and partly is under the control of the company. The industrial revolution is strategically important because it brings forth the change in the competition sources. In the pattern of the product life cycle, for example, growth rates change; product differentiation falls as the business matures and the company tends to integrate vertically. The products and technologies that in the past were top in the world came to be interpreted, copied by the competition, and thus made widely applicable. The space of time required to copy the product is shortened, and this resulted into the standardization of high technology products Š17, p. 429Ë. Hence the developed industry of high technologies underwent a vertical integration, both in production and in the software development. This very important trend significantly increases the scope of economy as well as the amount of necessary capital to compete in the branch, which in turn raises the access barriers and may force certain minor competitors out of the business. The process of defining a new strategic orientation must not be rigid, that is, strategic organization has to be adaptable, since this is a precondition for creating a long-term competitive advantage Š13, p. 566Ë. Obviously, the trends marked as highest priority trends from the strategic point of view are those affecting the majority of competition sources in the branch. The competition analysis can also be applied to anticipate a possible profitability of a branch. In long-term planning, the task of the company is to explore each competition factor, predict the magnitude of each cause and then devise a complete picture of the profit potential of the branch. An illustration can be a business in solar heating, conducted today by a large number of companies, however, none with the leading role in the market. The access is easy, the competitors struggle to ensure the position of solar heating as replacement for the conven tional hrating methods. The potential of this branch will largely depend on the shape of the future access barriers, on the improvent of the branch position over the substitutes, on the intensity of competition and on the strength of both the customers and the suppliers. A feedback effect upon these factors will come from the following factors: establishing the brand identity, a significant level of the economy of scope or a level of experience in the production of equipment achieved via technological progress, as well as the cost of capital. The framework for the branch competition analysis has direct advantages in conceiving the diversification strategy. This provides a map for an answer to a complex question which is inseparable from diversification oriented decisions:What is the potential of the target business? 5. Defining company business as starting point in market restructuring Managers devote a lot of attention to defining their businesses, this being the most important step in strategy formulation. Theodor Levitt Š9, p.26Ë advocates avoiding myopia, i.e., he pleads for a productivity-oriented definition of the branch. Numerous other authors stressed the need to look over the product in the function of defining the business, over the borders of potential international competition and outside the current list of direct competitors, all for the purpose of exploiting the new markets, where the most important motive is the fear of overlooking the latent sources of competition. A large number of managers exclusively concentrate upon their direct competitors in their struggle for the market share, so they fail to understand that they also fight for both their customers and their suppliers in the negotiation process. Similarly, they neglect paying attention to new competitors, as well as to the threat coming from new products that can successfully substitute their own products. The key issue for the growth, and even for the survival, is to closely watch the position that is less exposed to the direct attack of the competitor, regardless of whether they are newly established or long present in the market, and consequently less vulnerable as regards customers, suppliers and new substitutes of the produt. A position should be established that can take on various forms, such as: building solid relations with best customers, product differentiation on the market, forward or backward integration and taking over the technological leadership. Companies must be flexible in order that they should respond promptly to the challenges coming from competition as well as to market changes. They must con stantly improve the landmarks of their operations to achieve best practice, but also to be agressive in order that they should become efficient, and they themselves have to nurture certain most important features to remain leaders. Positioning is abandoned as too static for the todays dynamic markets and technological changes. In accordance with the new dogma, rivals can quickly copy any market position, hence competitive advantage is at best temporary. Therefore the company must timely identify new opportunities, or threats, and develop a planned approach to their exploitation, or minimization. The analysis of each od the strategic options that determine the customer behaviour is necessary, and that means the following: Analyse and anticipate environment; Assess the strengths and the weaknesses of the company; Identify the critical business success factors; Define strategic options; Select the appropriate alternative; Institutionalize the implementation of the selected strategic option. As the task of the strategy is to make the developmental behaviour of the company concrete in the domain of business efficiency, that is, to orient its activities towards real needs and real tools, it is important that the analysis of relevant parametres should provide a business-competitive profile of the company. Hence the business definition becomes the definition of the market that makes the basis of the business. The most important approach to business definition includes the benefits and functions for the customers, clusters of customers and technology and also a fourth dimension that refers to the stage in the system of added value to the product. The first dimension refers to identifying the benefits the customer expects, hence a set of functions the product has for the customer, rather than the product or a service. The second dimension (customer cluster) stresses the need to recognize the market segment that will, due to its characteristics, be the focus of the company orientation. The technological dimension refers to the analysis of alternative methods of satisfying the needs, i.e., problems of customers. Hence it is important that an adequate technology is adopted for the purpose of achieving competitive advantages in the market. In defining the company business it is necessary that the stage the business presents in the overall phases of value adding from raw materials to finished product completion be taken into consideration. In respect to this framework the company defines its goals connecting its present business and its prospective business, however, it also helps managers better perception of the market conditions, the position of the company in relation to the customers and competition as well as efficiency in business operations. 6. Concluding considerations The need for intensive change implementation in business, largely based on market restructuring becomes ever more urgent in order that the company should survive and develop, primarily through ensuring a distinctive competitive advantage, on one hand, and satisfy ever more demanding customers, on the other, in the newly changed market conditions of fall in aggregate demand. Namely, market restructuring that entails a succession of structural changes in market orientation and marketing activities is meant to enable companies to be flexible in satisfying the changed environmental needs and achieve competitive advantage in a redefined market, business sector and/or altered programme portfolio. One of the key preconditions of success here, even in the conditions of global crisis and recession is the (re)definition of a concrete business of the company which will, together with an optimum developmental strategy, improve its market position Š4Ë. Having in mind that the management activities help make the market dimension of the current and developmental business operations concrete, it is necessary that considerable changes in the mix of business functions be made, in accordance with the changes in the environment and, by this analogy, the prevailing business practice in developed market economies. The changes in the company business, starting from the basic hypothesis of this paper, must not be focused exclusively upon financial restructuring carried out via sales of part of the assets to repay accumulated debts, upon reducing the number of employees and a stricter control (and rationalization) of total costs of business operations, where the first victims are the marketing costs, especially advertizing. The existing business conditions in which the vital interests of survival od numerous companies are threatened, require prompt and concrete actions. It is necessary to opt for searching for an altered vision and defining new objectives and proactive strategies to transform the problems induced by changes in external environment into opportunities. In accordance with the principles of strategic management, companies should attempt to identify new opportunities, or threats and devise a planned approach to their exploitation, or minimization. The change in the developmental strategy and in the defining of the market restructuring strategy, and, on this basis, the change in internal organization and the method of human resource exploitation and the rationalization of costs of business operations and change in the financing pattern are all meant to proactively support the improvement of the existing market position and the overall business position of companies. Furthermore, the implementation of these must not be restricted to only those firms that are in difficulties, but must become a reality of successful companies too. REFERENCES Š1Ë Ansoff Igor: Management Strategy, McGraw-Hill, Boston, 1985. Š2Ë Dess G., Lumpin G i Eisner A, Strategic Management, Data status, Beograd, 2007. Š3Ë Day S. G. Strategic Management Planning, West Publishing Company, 1984. Š4Ë Domazet I., Faktor unapređenja konkurentske pozicije preduzeća - operativni menadžment, Anali Ekonomskog fakulteta u Subotici (journal no. 18/2007), (str.93-101), Ekonomski fakultet u Subotici, Univerzitet u Novom Sadu, 2007. Š5Ë Domazet I, Zubović J, Drašković B (2009) CRM koncept u funkciji unapredjenja direktnog marketinga, časopis Managemet, pp. 29-37, 4/2009. Š6Ë EBRD Transition report for 2010. Š7Ë Erić D, Stošić I, Brnjas Z, Strategijski menadžment u agrobiznisu, monografija, Institut ekonomskih nauka, Beograd, 2007. Š8Ë IMF, Data on Public Intervention, 2009. Š9Ë Levitt T. Marketing Myopia, Harvard Business Review, Sept - Oct. 1975. Š10Ë Porter M. E. Competitive Advantage, The Free Prees, New York, 1985. Š11Ë Porter M.: What is Strategy, Harvard Business Review, Nov.-Dec. 1996. Š12Ë Slatter S, Corporate Recovery, Penquin Books, New York, 2000. Š13Ë Stojanović-Aleksić V, Erić J, Šapić S, Definisanje strategijske orijentacije novih poduhvata u oblasti visokih tehnologija, Ekonomske Teme, Niš, no. 4/2010. Š14Ë Arthur A. Thompson, Jr. and A. J. Strickland III: «Strategic Management, Concepts and Cases», 13th edition, McGraw-Hill, Boston, 2004. Š15Ë Todorović J., Stošić I. i Milosavljević S. : Perspektive procesa restrukturiranja u Srbiji, Savetovanje SEJ, June, Miločer, 2001. Š16Ë de Wit B i Meyer R: «Strategy- Process, Content, Context» -III edition, Thompson 2004. Š17Ë Zubović J, Domazet I, Bradić-Martinović A, Globalization of Business Activities, in Babić and Maksimović, editors Inostrani kapital kao faktor razvoja zemalja u tranziciji, Ekonomski fakultet, Kragujevac, 2009. Cost Optimization of the REM and HM Systems Electronic Access Channels UDC: 005.591.1:656.8 ; 656.8:004.738.5 Mihailo Jovanović1, Siniša Rankov2 1PE of PTT communications Srbija mihailo.jovanovic¿ptt.rs 2Faculty of Business Studies, Megatrend University The global scope of letter-mail services which imply the manipulation by post in physical form is continuously diminishing. The explosive development of IC technologies, which is the most obvious in the development of the Internet and mobile telephony, caused the often traditionally oriented PPOs (public postal operators) to opt for the development of their core activity in the field of integrated IT solutions. Following the specific requirements of the users, who ceased to use the traditional written communication owing to the electronic access channels (Internet and mobile communications, i.e. e-mails and SMS messages), the POs have no other option but to facilitate the electronic communication of users in order to keep letter-mail items within their systems and thus protect their income. The two systems which enable users to send the electronic data are Registered Electronic Mail (REM) and Hybrid Mail (HM). The implementation of the model of integration of these two systems, that is reflected in the use of integrated electronic access channels and which is the subject of this paper, has significant economic effects and technical justification for the public postal operator. 1. operations of the public postal operators REM and HM systems Registered Electronic Mail (REM) is a type of electronic service that ensures an integrated electronic data exchange between end users on the principles of the exchange of registered mail in a physical form. The basic features of this service are that it is entirely electronic and provides a reliable and certified data exchange between the mailer, the service provider and the mailee. In comparison with the traditional service od mail exchange, the REM system provides the service of confidential electronic communication that contains bothe the mailing evidence and receiving mail evidence between previously authenticated users. Evidence and archival of all the events and operations is performed in each section of the REM system, in the transfer or exchange of electronic mail, thus ensuring a reliable tracking of the mail status. Hence the REM system can be said to be an electronic version of traditional registered mail in the physical form, significantly improved through strict authentication procedures and a high level of protection of the mail integrity and confidentiality, which provides irrevocable evidence on all the events and operations in the system implementing modern cryptographic technologies. Š1Ë,Š3Ë,Š4Ë. At the congress held in Seoul in 1994, the Universal Postal Union UPU (www.upu.int) adopted a decision on forming the Telematics Cooperative. The reason for establishing the Cooperative is to help postal operators improve business processes through the modern information and communication technologies implementation. The task of the Telematics Cooperative is to collaborate with postal operators in developing new electronic products and services to be offered to customers. The Telematics Cooperative includes three work groups: 1. The international Mail Services IMS User Group. The task of the IMS group is to define the strategies and business processes for the electronic tracking of mail (EMS, letters and packages) in the international postal handling. 2. The International Financial Services IFS User Group. The task of the IFS group is to define strategies and business processes for the international money transfer systems. 3. The Advanced Electronic Services User Group AES User Group that comprises the following subgroups: 3.1 Subgroup for UPU standard S43 Secure Electronic Postal Services SEPS Interface Specification whose task is to define the interface for the Electronic Postal Certification Mark EPCM and other S43 services such as Postal Registered Electronic Mail PReM. 3.2 Subgroup for the Global Hybrid Mail 3.3 Subgroup for RFID Radio Frequency Identification 3.4 Subgroup for the Internet .post Top Level Domain TLD. 3.5 Subgroup for Case Study Knowledge Base The Postal registered electronic mail (PReM) is to provide a confidential and certified electronic commu nication between the mailer, the public postal operator and the mailee. In addition, similarly to the REM system, the PReM system is to provide evidence and archival of all the events and operations in the system. The PReM system comprises the following features: secured message forwarding and delivery without compromising or change in the contents (mail integrity guaranteed) between authenticized and irrevocable users (mailer and mailee) and the PReM service provider public postal operator, evidence generation, due to which any important events in the system are recorded, event notification, by which individual recorded events or operations in the system are sent to corresponding parties in the process, archival of evidence, providing the storage and safekeeping of the evidence for possible further search or analysis, archival of messages, providing the storage and safekeeping of the PReM system messages for possible subsequent search or analysis and centralized search of authorized public postal operators, providing the centralized service of yellow pages with integral information on authorized public postal operators. Š1Ë The architecture of the PReM system is defined using the conceptual model that consists of mailer, mailee, authorized third parties, authorized public postal operators of both the mailer and the mailee and the distribution point of the Trust list of public postal operators. The data on the mailer and/or mailee are stored in the Directory Server of the public postal operator and accessible to registered users following different criteria (electronic address or name and surname). To identify the authorized public postal operator of the mailee, the PReM system conceptual model assumes the presence of the point of exchange of confidential/trust public postal operators which contains the list of public postal operators maintained and announced by the Universal Postal Union. The mailer and mailee may be users of the same or different (this model is presented in figure 1) public postal operators. Figure 1. The PReM system conceptual model in case mailer and mailee are users of different postal operators. Evidence generation of all the operations and transactions is the core characteristic of the PReM system. In order that these be provided, it is necessary that all the participants in the PReM mail forwarding process should be identified (mailer, mailee, mailers and mailees public postal operators) as well as that irrevocability of transactions between the participants in the PReM mail transfer be present. In view of the above, several authentication models can be implemented: 1. Password-based authentication. The use of user name and password or any other authentication mechanism with two factors is the first level of authentication model. The first step in this type of basic authentication is the access to service that means a direct authentication so that the public postal operator can check the identity of mailer or mailee. 2. Electronic signature using electronic cerificate. This authentication model is not used only with mailer and mailee, but also with the public postal operator. The format and rules the electronic signature should satisfy are defined in RFC 5280 and the European Directive 1999/93/EC. 3. Qualified electronic signature using qualified electronic certificate. This authentication model is the highest level of identity management applied to the postal registered electronic mail users. In accordance with the RFC3739, ETSI TS 101 862 and the European Directive 199/93/EC, the user of the qualified electronic certificate has to identify himself in a direct contact on occasion of certificate issuing, whereas the medium for certificate storage has to be consistent with the Secure Signature Creation Device (defined in European Committe for Standardization, CEN/ISSS workshop Agreement CWA14169). Š1Ë The implementation of different authentication models and identity management depend on the PReM service provider policy, however, the above-defined authentication models are recommended. It is certainly the right of the PReM service provider to choose the level of security mechanisms he wishes to implement in his PReM system. It is on the basis of the security mechanisms implementation that the level of trust among different public postal operators is determined. Hybrid mail (HM) is a type of partially electronic mail exchange where, contrary to the traditional manner of mail forwarding, the mail contents is forwarded and transmitted in an electronic form, printed and packaged on a location in the vicinity of the delivery destination and finaly delivered to the mailee in a physical form. In this way, the combined electronic and physical method of mail delivery includes the technological phases of receipt, processing and preparation of electronic data, mail printing, putting the mail into envelope or packing it, addressing and delivery. Although the exploitation of the earliest hybrid mail systems dates back to the 1980s, it is only with the expansion of the Internet that its development has been intensified. This development was guided by the simplicity of sending the hybrid mail via the Internet, but also by a significant cost reduction in transposrt and processing. Without an integrative approach to service delivery, however, postal operators are unable to achieve a full potential of hybrid mail; consequently their success in the market is limitted. The integration with the delivery network requires that the postal operator produce the mail in such a way that it is transport-, processing, and delivery-optimized. This means that the system decides where, when and how the mail will be printed. The option of where mail will be printed implies the implementation of the distributed hybrid mail (DHM), i.e., the use of a number of distributive centres for mail printing and packaging, as well as the option of selecting one centre on the basis of the quality of its equippment or address data. Š2Ë,Š3Ë,Š4Ë Within the scope of activities of the Universal Postal Union (UPU) the RL253 Hybrid Mail regulations were prepared, for hybrid mail standardization on the world level. Namely, more than 80 member states of the Universal Postal Union offer hybrid mail services in different forms and shapes. Hence the Universal Postal Union recognized the hybrid mail domain as a growing market for the postal industry in the period to come. Futhermore, in the current conditions of the world economy as well as under a growing intention to rationalize the world energy consumprion and protect the environmental, hybrid mail fits perfectly as a business solution for the world postal organization in the 21st century. The Global Hybrid Mail (GHM) project is based on the idea of forming a global hybrid mail network that would allow for the member states of the Universal Postal Union to offer hybrid mail services beyond their borders. Owing to this network, end users would be in a position to access the network of international postal services via the Internet. Hence the Universal Postal Union has already defined hybrid mail as a possible postal service within the Letter Post Regulations. The next step in the GHM project is to define an integral regulatory framework and a business model for the Global Hybrid Mail network operations. The additional potentials of the Global Hybrid Mail network could be its integration with the electronic postal mark (EPCM) and other technologies for safe communication of electronic documents for the purpose of supporting the definition and development of a hybrid version of registered electronic mail. 2. Electronic business models in electronic access channel management Electronic business (e-business) is defined as purchase and sales of information, products or services via a computer network and as a support to any types of business transactions via a digital (electronic) infrastructure, that is, via electronic access channels. A mass development and implementation of the Internet as one of the most widely spread electronic access channels have motivated an increasing number of users, who are in search of a more economic and a more efficient manner of work, to exploit the opportunities offered by electronic business. Electronic business entails the exchange of standardized electronic messages between physical and legal entities in the procedures of negotiations, contracting, purchase, sales, payments, communication with administration and courts and performing other legally allowed business transactions. It is based on an efficient and modern organization of work, adjusted to implementation of modern information and communication technologies, use of the Internet in performing a majority of business transactions, organization and implementation of the modern information system, implementation of electronic signature and using the cryptographic mechanisms of protection. Š5Ë Electronic business differs from traditional business doing in that it eliminates time differences and geographical distance between business partners in the procedures of ordering, payment and delivery of goods and services. The business boundaries are in this way extended to goods and services that did not exist earlier electronic products. The electronic business provides quality products to its customers, adjusted to their needs and at lower prices and a higher quality service. Electronic business models are varied, among them Š5Ë: 1. B2C business to customer electronic business that means the sales of goods or services to end users via electronic access channels. The task of this electronic business model is to expand the market and satisfy the needs of the existing customers both in the domain of sales of goods and services and in the domains of providing information, services and support in exploitation. This model includes services of fast and reliable communication, sophisticated design and data validity attestation. The basic form of this model of electronic business are automated on-line shops. The advantages of this business model are the following: time saving, high competitiveness, lower prices of goods, services and transactions. 2. C2B customer to business electronic business is a model of electronic business in which the customer orders a product or a service from the servce provider in that he places his order with the appropriate budget via electronic access channels, upon which the service provider places his offer. 3. B2B business to business electronic business is a model of electronic business that implies the use of electronic access channels for sales or purchasing, as well as for a less expensive, faster and more reliable cooperation between business partners. This model is oriented towards a more efficient electronic support to the existing business activities and a high level of operation in the exchange of information, goods and services. The most common environment for the development of this electronic business model is the Extranet. 4. C2C customer to customer electronic business is a model in which users perform the sales of goods among themselves, using electronic access channels. Basically, this model can be titled C2B2C as well, since the mediator charges commission, and the best example of this model is the eBay. 5. B2A business to administration electronic business is a model that includes a large number of services in the fields of social welfare, employment, public registres, etc. 6. C2G consumer to government electronic business is a model that includes a large number of services in the following areas: social insurance (provision of information and cash payments), health care (making appointments, provision of information on illnesses and payment of health care services), education (provision of information and distance learning), taxes (submission of tax declarations and tax payment). 7. B2E business to employee electronic business is a model that provides the employees in companies with an access to varied information and services via electronic access channels. This channel is most frequently the Intranet, that is, an internal web portal accessed by the employees via a local computer network. This model also provides for the integration of the internal segment of business with the B2B or B2C models. It is in this way that a permanent replication of data between the internal and the external data sources is ensured, as well as data analysis and support in making decisions for the purpose of increasing the scope or quality of services. The aim of this type of electronic business is to improve the efficiency and eliminate costs incurred in case the internal and the external systems are separated. The electronic access channels for using and payment of the services of integrated systems of registered and hybrid electronic mail can be effected in various ways, which largely depends on the type of device the user accesses, but also on the location from which an access is made. It is, however, possible to classify the electronic access channels for access to the REM and PM integrated systems in the following way: 1. electronic access channel via the Internet, 2. electronic access channel via mobile telephony, 3. electronic access channel via fixed telephony, 4. electronic access channel via user self-service de vices, 5. electronic access channel via two-way cable-distribution systems, that is, via interactive television (VoD video on demand, NVoD near video on demand). Using these universal electronic access channels of the integrated REM and HM systems it is possible to access different services offered by these two systems, but also to pay for the services. Table 1 presents a survey of electronic access channels of integrated systems, the interface electronic access channel, a possible method of payment for a service and the type of payment for the service. As can be seen in Table 1, the Internet, as an electronic access channel offers different methods of user access, such as web-oriented application, electronic mail client or application for large users. Simultaneously, the method of payment for the services of the integrated REM and HM systems via the Internet can be directly on-line, from the users bank account, by using a credit, a debit or a loyalty card, by sending an SMS message, or indirectly, by payment for the use of the Internet access service. Payments via the Internet electronic access channel means either a prepaid (characteristic of payments from bank accounts, by an SMS message or a loyalty card), or a postpaid manner of payment (characteristic of payments by a credit or debit cards or indirectly, with the Internet services bill). Billing integrated services, in case payments are made indirectly, payments of the Internet services bill, may be upon service (in which case a number of transactions or services that are provided monthly is evidenced), or lump sum payment, the so-called flat rate service. As an electronic access channel, mobile telephony offers the user an opportunity of using a wide variety of interfaces. Starting from the IVR, or a contact centre to which, in the same way as in fixed telephony, the users access and communicate via a voice channel, to SMS messages, to WAP Internet portal or a specialsed mobile application for bill payment. In case of mobile telephony, or in case of payments in mobile banking, there is a difference between micro and macro payments. In the former case, the payment is effected from the account of the mobile subscriber (prepaid or postpaid) by which the bill for mobile telephony increases for the amount to be paid for the bill of the integrated REM and HM system service. Due to a relatively limited indebtedness of the mobile user, thie model is suitable for the prepaid method of payment for the integrates services of the REM and HM systems. The latter method entails the order for payment of integrated services of the REM and HM systems from the bank account of the debit or a credit cards of the user. Electronic access channel of integrated REM and HM (DHM) systems Internet Mobile telephony Fixed telephony Self-service device Interactive television electronic access channel interface Method of payment for Type of payment Electronic business service for service model  web oriented application, electronic post client, application fro large users.  WAP, SMS, mobile application, IVR, contact centre. IVR, contact centre.   Self-service device application. Electronic programme guide of a digital television connection. credit or debit card, bank account,  SMS,  loyalty card, internet service bill (on service or flat rate). micro payment, macro payment (bank account, credit or debit card). Bill for fixed telephony services (on service or flat rate), račun u banci. credit or debit card, loyalty card.   Bill for the CDS system services (on service or flat rate), credit or debit card,  SMS, loyalty card. prepaid, postpaid. C2C, C2B, C2G, B2C, B2B, B2E, G2C. prepaid, postpaid. prepaid, postpaid. prepaid, postpaid. prepaid, postpaid. C2C, C2B, C2G. C2C, C2B, C2G. C2C, C2B, C2G. C2C, C2B, C2G. Table 1. Universal electronic access channels for an integrated access to services of the integrated REM and HM (DHM) systems. This type of payment is suitable for both prepaid and postpaid payments of integrated services of the REM and HM systems as it does not affect the mobile telephony services bill. Self-service devices, too, can serve as electronic access channels to access the services of the REM and HM integrated systems. These devices, depending on their hardware properties and a primary method of use, are be called ATMs, postomats, automatic cash machines etc., and they enable the access to services via a user application of the device itself, while payment is made using a credit, a debit or a loyalty card. In case the selfservise device is used to access services, the most common way of payment is prepaid, that is, the user pays for the service prior to using it. The self-service device, however, can serve for postpaid payments of bills for using the services of integrated REM and HM systems (e.g. the overall monthly debits). Finally, the implementation of two-way cable-distribution systems (CDS) on the basis of which various bidirectional services were developed (cable Internet, interactive television), opened the prospects for using a television set as an interface of a electronic access channel. Namely, interactive television, that is, the application of an electronic program guide of a digital television set (or an analogue television receiver combined with an appropriate set-top box) is an electronic access channel for using the services of the REM and HM integrated systems. Payment for the service can be either on-line, using the credit, debit or loyalty cards, sending an SMS message, or indirectly, paying the bill for the cable-distribution system services. In addition to the survey of electronic access channels for the REM and HM integrated systems, Table 1 presents a potential model of electronic business. As seen in the table, contrary to the Internet that supports almost all models of electronic business (C2C, C2B, C2G, B2C, B2B, B2E, G2C) and is a universal infrastructure for electronic business, mobile and fixed telephonies, a selfservice device and interactive television are electronic access channels for individual users citizens that use these devices to access the integrated services of the REM and HM integrated systems, communicating with other users, legal entities, or state administration, local autonomy and administration (C2C, C2B, C2G). 3. The REM and HM systems integration in electronic access channel optimization The integration of the REM and HM systems of public postal operator offers the following significant advantages to the users of once individual, non-integrated systems: 1. Option of choice of the integrated access of these two systems, as to whether they need to perform an integrated electronic communication, that is, to send the recipient the registered electronic mail, or they want the electronically sent mail to be delivered in a physical form, through a hybrid mail system. It is in this way that added value is obtained for the users of these systems who have an opportunity, due to the integration of the systems, to choose both the method of delivery and the characteristics of their mail, and in a simplified way. 2. Option of choice of the speed of mail delivery and attributes. The speed of mail delivery is highest in the REM system, followed by the DHM system, and lowest in the HM system. This is understandable because communication in the REM system is entirely electronic, in the DHM system it is electronic to a large degree, while in the HM system electronic communication and physical delivery are present in equal degrees. On the other hand, the opportunity to manage the mail attributes which is mostly reflected in an additional personalization, in the choice of the type of an envelope and the manner in which the mail will be put into it, in the use of colour print and in, perhaps, additional annexes and information is best in the HM system, slightly inferior in the DHM system and the least in the REM system. 3. Cost reduction in mail delivery using the REM system delivery channels, with retaining the technology of mail delivery in a physical form via the HM system to those users who are not willing to receive their mail in an electronic form. This option is very important for the large REM and HM (DHM) system users (of billing type) because they are offered a simple way in which they can choose the format in which their mail is to be delivered electronically or in a traditional way. Such users are mostly large telecommunication companies, electrical energy distribution service providers, utility companies, business banks, insurance companies or local tax administrations that generate a large amount of mail on a monthly basis. 4. A faster delivery of mail using the REM system delivery channels and consequently faster and better economic, i.e., financial effects the post has to achieve: a faster collection, reduction in the market marketing time or a more efficiend distribution of information. At the same time, by using the REM and HM systems potentials for mail personalization and inserting advertising flyers, the system users are given an opportunity to efficiently manage the marketing campaigns and earn additional incomes (specific financial effects). 5. Mail archival option. The option of mail archival offers the system users two types of facilities. First, the REM system allows the user a subsequent access to the digital archives which are electronically signed and assigned a time stamp. Second, the HM or DHM systems allow the user to receive the duplicate of his mail in an easy and user-friendly manner. These facilities are in fact value added services for the integrated system users. ferent formats is conducted in the HM system, and archival and storage are performed in the REM system. It is very important for the public postal operator to offer all the additional services of mail archival, storage, processing, search, subsequent access, repeated mailing, formatting and personalization which he will find much easier due to the integration of additional services characteristic of the individual REM and HM (DHM) systems. 6. Environmental protection as a result of the REM system implementation due to the reductions in exploitation of paper forms and pollutant gases emissions in the transport of mail in a physical form, on one hand, and prevention of digital divisions and human rights protection for those mailees who do not use electronic communications and still receive their mail in a physical form via the HM or DHM systems, on the other. These facilities are an additional motive to large users of the REM and HM (DHM) integrated systems to join the environmental protection campaign, and simultaneously retain the same traditional method of mail delivery to their clients. 7. An option for the user to track the mail sent via the REM system electronic access channels to be prepared and delivered via the HM or DHM systems, first through the REM system, then through the subsystem for data receiving, processing and preparation in the HM (DHM) system and finally through the track&trace system of the public postal operator. It is in this way that the users, regardless of the method of mail delivery, retain a very important option to use the services of tracking their mail status which is very important for building up trust between the service provider and the service user. On the other hand, the integration of the REM and HM systems offers numerous advantages to public postal operators, among which the following stand out Š6Ë, Š7Ë, Š8Ë, Š9Ë, Š10Ë, Š11Ë, Š12Ë, Š13Ë: 1. Both large users of the billing type and physical entities of the mailing type are in a position to receive their mail in a simple way, via the integrated electronic access channels. In this way, the existing users still feel that they use the old mailing systems they are used to, while the new users accept this integrated approach easily since they are offered the option of choice of the delivery method, together with the facility of tracking the status and monitoring the performance of both systems. 2. The option of different methods of data, or mail, processing and storage: the preparation of mail in dif 3. A significant operations improvement and simplification and a less expensive exploitation of integrated systems using the following options: a simultaneous data processing and different users mail generating either in electronic or in physical forms; an easy mail processing (electronic data processing, sorting, clustering, inserting bar-codes and OCR inscriptions, addressing, archival); automatic mail transmission (to various devices for printing and packaging in different hybrid mail distribution centres, in different printing formats); mail delivery management (the options of mail delivery in either electronic or physical form, in a desired time space, in different physical formats, automatic marking of undelivered mail, or generating the status of undelivered or rejected registered electronic mail, the analysis of the address of undelivered mail and an option of subsequent delivery); the option of document archival and delivery of mail duplicate; the option of organizing various marketing campaigns via different direct mail services with an option of choosing the form in which the mail will be delivered. 4. A significant cost reductions in planning, designing, development, exploitation, maintenance and management of electronic access channels and information systems, that is, a significant economic justification, due to the integration of the REM and HM (DHM) systems using universal electronic access channels and sections of information system that can be used for the needs of two systems (e.g., subsystem for supervision and subsystem for collecting). 5. An option of integrating the REM and HM (DHM) integrated systems subsystem for supervision and subsystem for collecting into an integrated information system of the public postal operator, thus gaining control over all technological and information resources, process optimization and cost reduction, and improving economic profitability. The integration of management and control elements of the systems with the operators information system (implementation of electronic business models and strategies) which contains the software for enterprise resource management  ERP, customer relation management - ERM1 and supply chain management SCM, is a powerful information integration that results into an easier and efficient managemnt of an integrated system, reliability improvement, profitability and productivity, reduces costs of development, explotation and maintenance, and also provides control of all the technological and information resources as well as process and cost optimization. 6. A significant improvements in profitability, competitiveness, success and a better market positioning of a modern public postal operator, due to the implementation of the universal electronic access channels and the REM and HM systems integration. 4. Cost optimization of integrated REM and HM systems electronic access channels All the reasons for the introduction of integrated electronic access channels of the REM and HM systems are marginal in comparison with the cost on transaction (economic aspects of optimization). For the purposes of cost optimization analysis, a graph in Figure 2 is used, and it shows that the cost of one transaction (banking in this case) via the Internet or via the WAP service of the mobile telephony is by as much as 97% lower compared to the cost of transacaction in the bank branch office! Š14Ë This can be easily understood because, in case of access via the Internet or via the mobile telephony, the user himslef acts as a liquidator, he purchases and maintains his equipment (computer or mobile phone) and covers all the costs of connection with the bank (advantages of electronic business, i.e., using electronic access channels). The relations among costs of transactions effected via the counter vs. the electronic access channel, presented in the graph in Figure 2, are also applied in the public postal operators business cost optimization incurred during the use of integrated electronic access channels of the REM and HM systems. The number of processed letter-mail (received, processed, transported and delivered) in a physical, traditional form in 2010 in the PE of PTT communications Srbija approximated 290,000,000, and the cost of processing for one letter amounted to 25 dinars. Š5Ë Figure 2. The graph of bank transaction costs de pending on the type of electronic access channel. Š14Ë The plan of the company for 2011 is to develop integrated REM and HM systems using integrated electronic access channels, among them the contact centre, the self-service device (postomat) and the Internet primarily. In order to forecast cost reductions in the business of this operator in the next five years, it is possible to assume the amount of that will, instead in a physical form, be realized via an electronic access channel. Table 2 presents the parametres taken in this analysis for three different cases, i.e., forecasts (moderate, pessimistic, optimistic) based on the data available for the PE of PTT communications Srbija for 2010 (statistically basic year is 2010). The graph in Figure 3 shows that the cost reductions in the business of the PE of PTT communications Srbija in the five-year period, and according to forecasts, ranges from 1.5 to as much as 3.2 billion dinars. 1 Blery, E.K.&Michalopoulos, M.G., 2006, An e-CRM application in the Greek telecommunications sector, Management journal for management thory and practice, vol. 11, no. 44, pp. 55-60. Š11Ë  Year Internet Self-service device Contact centre Internet Self-service device Contact centre Internet Self-service device Contact centre % I II III Moderate forecast IV V number 17,400,000 34,800,000 43,500,000 52,200,000 58,000,000 % 1.5 4.5 number 4,350,000 8,700,000 11,600,000 13,050,000 14,500,000 % 3.5  number 10,150,000 20,300,000 26,100,000 31,900,000 34,800,000 Pessimistic forecast %  number 8,700,000 17,400,000 23,200,000 26,100,000 29,000,000 % 2.5 3.5 number 2,900,000 5,800,000 7,250,000 8,700,000 10,150,000 %  number 5,800,000 11,600,000 14,500,000 17,400,000 20,300,000 Optimistic forecast %  number 20,300,000 40,600,000 58,000,000 66,700,000 72,500,000 %  number 8,700,000 17,400,000 23,200,000 26,100,000 29,000,000 %  number 11,600,000 23,200,000 31,900,000 37,700,000 43,500,000 Table 2. Percentage and number of transactions via integrated electronic access channels in the five-year period Figure 3. Cost reductions in the business of the PE of PTT communications Srbija in the conditions of in tegrated REM and HM systems electronic access channels implementation. Figure 4. Percentage of cost reductions in the business of the PE of PTT communications Srbija in the conditions of integrated REM and HM systems electronic access channels implementation. 5. Conclusion The integration of REM and HM systems provides for the optimization of costs, hence it is highly economically justified in the conditions of implementation of integrated electronic access channels of the two systems. These channels can be implemented in a number of ways, depending on the type of device the user chooses to access the services, but also on the location from which the user accesses these services. The observed model of integrated electronic access channels classifies the following accesses: the Internet, the mobile and fixed telephonies, self-service device, and a two-way CDS system. Contrary to the Internet that supports nearly all the models of electronic business and makes a universal infrastructure for electronic business operations, the mobile and fixed telephonies, self-service device and interactive television are the access channels for individual users citizens, to access the integrated services of the REM and HM integrated systems, communicate with other users, legal entities or state administration, local autonomy and administration. The model of REM and HM systems integration described in this paper allows for the postal operator to increase the scope of his services and consequently his income Š12Ë: due to the integration of the system, the reception of mail of large users (billing type) and physical entities (mailing type) via integrated electronic access channels is simplified, they offer an option of different ways of data or mail processing and storage, there is a significant cost reduction in planning, designing, development, exploitation, maintemence and management of universal electronic access channels and sections of the information system (subsystem for supervision and subsystem for collection). Due to the implementation of integrated electronic access channels (the Internet, self-service devices and contact centre) of the REM and HM systems, the cost optimization model implemented on the scope of services provided by the PE of PTT communications Srbija in the five-year period and based on the 2010 data, produces such econonic effects that result in cost reductions in the business of this public postal operator ranging from 15% to 40%. REFERENCES Š1Ë Universal postal union, Postal registered e-mail (PReM) functional specifications draft, 2009. Š3Ë M. Jovanović, S. Rankov, Z. Mišić, Upravljanje sistemom distribuirane hibridne pošte JP PTT saobraćaja Srbija, XVII telekomunikacioni forum Telfor 2009., Beograd. Š4Ë M. Jovanović, V. Petrović, S. Rankov, P. Milošević, Z. Mišić, Distribuirana hibridna pošta integrisana usluga Pošte Srbije, XXVII simpozijum o novim tehnologijama u poštanskom i telekomunikacionom saobraćaju PosTel 2009., Beograd. Š5Ë dr \orđe Mazinjanin, Metode komunikacije vlade i građana u elektronskom poslovanju gradske uprave, Modeli i forme e-poslovanja, pp. 15-18, 2008. Š6Ë Projektni tim JP PTT saobraćaja Srbija, Projekat sistema hibridne pošte, 2002. Š7Ë mr Dragan Spasić, Profil kvalifikovanog elektronskog sertifikata, Centar za elektronsko poslovanje pošte, JP PTT saobraćaja Srbija, Telfor, 2008. Š8Ë Brian R. Smith and group of authors, iSeries e business handbook, IBM, 2001. Š9Ë Madeep Singh, A primer on developing an e-business strategy, Western Illinois Univeristy USA, 2002. Š10Ë Murrell G. Shields, E-business and ERP, John Wiley & Sons, 2001. Š11Ë Blery, E.K.& Michalakopoulos, M.G. 2006, An e-CRM application in the Greek telecommunications sector, Management journal for management theory and practice, vol. 11, no. 44, pp. 5560. Š12Ë Zuzák, R. 2006, Analyses in the process of strategic management, Management - časopis za teoriju i praksu menadžmenta, vol. 11, no. 42, pp. 4954. Š13Ë Jill Dyshe, The CRM handbook: a business guide to customer relationship management, Addison Wesley, 2001. Š14Ë Merrill Warkentin, Business to business electronic commerce: challenges and solutions, Mississippi University - USA, Idea Group Publishing, 2002. Š15Ë E-business strategy, Department of enterprise, trade and employment, 2004. Š16Ë dr Vojkan Vasković, Sistemi plaćanja u elektronskom poslovanju, Fakultet organizacionih nauka Beograd, 2007. Š2Ë Jacob Johnsen-Senior Consultant, Hybrid Mail, Š17Ë Godišnji izveštaj JP PTT saobraćaja Srbija za World Mail Review, Nov. 2008. 2010. godinu. Evaluation of Results of Nonprofit Organizations UDC: 005.6:061.2 ; 005.52:330.133.1 Milka Ivanović, Zorana Antić Belgrade Business College milka.ivanovic¿bbs.edu.rs The service sector is constantly growing in the global economy, and this imposes the need for a detailed improvement of service quality and presentation of results, since the requirements addressed to non-profit organizations are growing higher. They refer to improving the performance in terms of achieving greater efficiency and effectiveness, the quality of service and responsibility in relation to all stakeholders, as well as to the evaluation of outcomes. This paper aims to highlight the importance of applying the model of quality management in terms of evaluating the efficiency and effectiveness of non-profit organizations, which implies competitive sustainability in the market. 1. Introduction The field of work of non-profit organizations lies between the state institutions and the organizations under a direct state control and jurisdiction, on one hand, and the private sector that has a free access to the market, on the other. The role and the importance of non-profit organizations significantly differs from the above mentioned institutions since they base their activities on the principle of primary non-profitability, which is not characteristic of either state or private types of ownership. The noble goals of these organizations also distinguish them from other entities in the society. Hence an affective and quality system of management in nonprofitable organizations is dedicated to continual improvement of performance and customer satisfaction, where outcome assessment is one of basic preconditions. A competitive advantage in the market is possible to achieve only if a quality management system is established, a system that is dynamic and able to adapt and change in accordance with the customer/user needs, requirements and expectations Š1Ë. 2. Quality and the problem of non-profit organizations services evaluation In the conditions of an increased competition, the changed value systems and, consequently, the increased customer requirements, quality has become a fundamental factor of survival in the market, of profitability and of an overall development. In order to survive in the market, organizations are forced to employ all their skills in the management of the business. As regards the time dimension, the effectiveness of organizational competitiveness can be achieved by creating and evaluation of the values of the service, delivery and market performances Š1Ë (Summers, 2009), which in a sense results into excellence in work. It is for this reason that many onganizations implement various strategies such as team work, quality assurance, quality management and service quality assessment. A. Anderson et al., (1994) Š2Ë perceive that certain organizations have already recognized the importance of an effective quality management for the purpose of achieving a competitive advantage in the market, which is important from the aspect of competitive sustainability. A fiercer competition and the global business operations that penetrates into the non-profit sector too impose certain increased demands in comparison with the formal evaluation of a completed project, which means the relevant output measurements and a continual collecting of data for any projects under way, whereas the former focus was mainly on inputs. Besides, the founders also expect the measurements that can facilitate the assessment of impacts upon a service or a project Š3Ë. Non-profit organizations are required to provide detailed information on the outcomes of their activities (the number of clients served, financial reports, project plans, the number of brochures distributed, the number of presentations organized, etc.). In certain cases, external consultants prepare periodical evaluations to estimate the effect of the non-profits programmes, services and activities. The practice so far has proved that such data are most frequently collected on demand of the founders, rarely for the purpose of either the analysis conducted by the organization itself or the improvement of further operations. What is essential, however, is that the measurement results should be used in managerial decision making so that the available resources, methods and approaches allow for achieving improved efficiency and effectiveness and ensure benefits for all the stakeholders. In view of the complexity of the system approach to quality and its diversity as regards the areas in which it is implemented, two aspects are important. One refers to the management model meant to improve the effectiveness and efficincy of the organizations whose primary purpose is care about people; the other refers to the im plementation of the adopted system approach in management that will be adjusted to organizational mission, vision and values and on the basis of which the non-profit organizations will be in a position to meet the requirements set before them by the founder or a sponsor. The quality implementation and improvement are based on the learning of the organization itself, on its strengths and capabilities for improvement. In order that they should be respectable, non-profit organizations should aim to provide a quality service to their clients and prove they work up to high standards. This requirement is imperative because non-profit organizations are expected to be accountable to the legislator, the founders, the sponsors, the trustees and finally to the public. As an advanced method of managing a non-profit organization, the quality system implementation provides a continual monitoring and evaluation of performance as well as collecting objective evidence in the form of documents and data in order that the organization can evaluate itself and constantly improve the quality of its services. Besides, such an approach to operations allows for the organization to compare itself with other organizations in the non-profit sector, as well as to determine the extent to which the organization adjusts to the permanently developing standards and requirements. tions that do not dispose of adequate technology (knowledge, skills, techniques, hardware and software) usually face difficulties in creating, in the implementation and in the evaluation of their services or outcomes. Making allowances for all the reasons that make the implementation of the quality improvement model in the non-profit sector necessary, as well as for all the benefits and restraints that hinder the implementation of these approaches, it can still be maintained that the majority of the European non-profit organizations have already adopted certain quality standards that allow them to improve their performance as well as their affectiveness Š4Ë. In practice, various models and approaches in the non-profit organizations quality improvement are implemented; some of them include all the aspects of organizational management and all its activities, whereas some quality standards refer to only certain aspects of operations. Also, a number of organizations in the non-profit sector implement generic models of the quality system, others adopt specific standards concerning concrete activities, and there are still some that develop their own in-house systems. In accordance with the model they implement, non-profit organizations evaluate their systems either through external evaluation or through certification, or, on the other hand, through a self-evaluation process. 4. Standards for implementation and evaluation 3. Different models and approaches to improving of non-profit organizations quality the quality of non-profit organizations In adapting to numerous requirements for service quality improvement, non-profit organizations attempt to prove that their programmes contribute to a positive change in the lives of the people, while the priority in the 1990s was only the monitoring of outcomes and expenses Š4Ë. Hence the requirements and expectations from non-profit organizations actually precondition their flexibility and liabilities, their re-examination and restructuring in terms of making important managerial decisions meant to facilitate the quality system implementation. A successful introduction and implementation of quality standards depend on five predictors: organizational culture, management support, technology, involvement and access to funds. In addition to the efforts made in accepting and adapting to change, the management support should be reflected in the provision of feedback information as to the extent to which the advances are made towards achieving the goal. Effective managers in the organization communicate the value of new business practice and take any steps necessary that the employees implement the planned activities in practice. The organiza The earliest theories on the quality of services and their dimensions were postulated in the 1980s. Groonroos offered two dimensions of quality: the technical and the functional Š5Ë. The technical quality refers to the outcome of the service delivered, whereas the functional quality deals with the service delivery process. A most widely used service quality assessment model SERVQUAL (abbreviated from: service quality) consists of five quality determinants Š6Ë (tangibility the presence of physical elements (service materialization), reliability the ability to deliver the promised service in an adequate manner, responsibility responsiveness, readiness to help and deliver a service promptly, credibility employees knowledge and competence, assurances, and empathy delivery of personalized service, viewing customer as an individual). The SERVQUAL methodology requires that 22 pairs of questions be formulated, of which customers are expected to answer a series of 22 questions prior to consuming a service, in order to measure expectations, and to answer another series of 22 questions concerning the quoted categories, after they have consumed the service, to measure the experience, i.e., the consumers percep tions (attitudes) of the service provided. Although this model dates back to 1985 and is a most widely implemented model in service quality assessment by a large number of service providing organizations, it is subject to much criticism, primarily from the conceptual and the methodological aspects. One of the basic points of criticism is about the number and meanings of the quality determinants, namely, its applicability in different service activities. Therefore, it is possible to modify the SERVQUAL model to adjust it to the characteristics of services in a specific service provision activity. In order that they should decide upon a most adequate quality standard within the existing systems, it is necessary that non-profit organizations answer the following questions meant to facilitate decision making Š7Ë: (cid:123) how far does the system address their main con cerns? (cid:123) how easily can the system be integrated with ex isting working practices? (cid:123) how sensitive is the system to the culture of the organisation? (cid:123) how simple or complex is the system? How does that fit our organisation? how resource intensive is the approach to implement? The generic models of quality systems entail standards relating to the entire business and ensuring a quality comparison with other organizations within a sector. The most frequent are the following: the ISO 9001 standard and the business excellence model (European Foundation for Quality Management (EFQM) Excellence Model). The quality standards related to only certain aspects of business include: (1) service quality standard (Customer first standard the British national certification service quality standard Š8Ë. It can be implemented by any organization in any industry); (2) standard for employees (Investors in People the British national standard related to human resource management and employee development) Š9Ë. The most frequently implemented quality standard in the non-profit sector organizations is the British PQASSO standard (Practical Quality Assurance System for Small Organizations1) Š10Ë. This self-evalu 1 The PQASSO standard was published by the British association CES (Charities Evaluation Services) in 1997, and the third edition of the standard appeared in 2008. This standard, which promotes a continual quality improvement in the organization, includes 12 chapters and 3 levels. ation standard entails all business aspects, as do all other standards, however, it is specifically created for small and medium-sized non-profit organizations or for project teams in larger organizations. It can be implemented in the organizations of various profiles in the fields of social welfare, environmental protection, health care and charities. In other European countries, this standard was adjusted to certain specific features, and adapted to be implemented Š11Ë in Hungary (under the name of MINTA) and Croatia (named SOKNO the Structure of Quality Assurance for Nonprofit Organizations, published by the TREF network) Š12Ë, and it can also be applied in Japan, India and Bangladesh Š13Ë. The PQASSO standard is created in such a manner that it uses self-evaluation to encourage a broader commitment and responsibility of all members of the organization to plan changes and develop ideas for a more efficient work of the organization, and through discussion. The effects and benefits from the application of the above mentioned standard in a non-profit organization will be manifold Š14Ë: A clearly defined and reconciled purpose of the organization; A better organized and coordinated organizational structure as well as management structure; A better response to the customer needs and the delivery of higher quality services; Improved team relations and internal communication; Motivated employees and volunteers that can develop their potentials within the organization; Higher recognition from the part of the local community, the users and the sponsors, and accordingly, a greater support in work. The findings of the study that dealt with the reasons for the quality programme implementation as well as the challenges and restraints in its implementation, conducted in the non-profit sector organizations in Great Britain, have shown that the majority of organizations are motivated to implement quality via various and numerous internal and external factors Š15Ë. According to the participants in the study, the reasons to adopt the quality programme, among other things, are: the necessity of a structured approach in the development of the organization, the delivery of a highest possible quality service to the customers, the understanding of how the customers perceive the best practice, the stabilization after the periods of crisis. The non-profit organizations that implemented one of the quality programmes stress the following benefits: the opportunity to affect the performance and improve it, a better relationship with the external environment, a higher reputation within the sector and a better relationship with partner organizations. The limitations in the implementation of the quality idea in the respondent organizations are most frequently reflected in: the lack of information on the available quality programmes that can be implemented in the non-profit sector, the non-conformity of qualty programmes to the organization (its structure, mission, vision, processes, activities), and also in a poor employee commitment and engagement in the field of quality, which is most often the consequence of a lack of commitment, engagement and dedicaton of their superiors. As regards the survey of the quality standards imple mentation in certain non-profit organizations in Great Britain, it would be interesting to compare these results with the findings of the study the co-author of this paper, M. Ivanović conducted in 2010. The target group of the study were the non-profit organization on the territory of Serbia. Among the questions in the questionnaire one dealt with the quality system implementation and outcome assessment. The majority of responses to the question on whether organizations implemented any of the quality system models were negative. A general conclusion as to the responses can be drawn after a tabular and graphic survey presented hereinafter. As can be learned from the survey, the majority of respondent organizations, as many as 61%, do not even think of a possibility to implement a quality system, while only 10% of the organizations have implemented the ISO 9001 standard. Table 1. The percentage of non-profit organizations that implemented the ISO 9001 quality system Graph 1. The chart of the quality system implementation in the NO in Serbia The attitudes of these same respondent organizations as regards the correlation between the quality system and the image and position building were, however, opposite to the previously presented decisions on the implementation of any of the quality system models. As regards the question on which factors affect the build ing of a favourable image and the positioning of nonprofit organizations in public, all the observed elements were rated as very important (the average marks range from 4.62 to 4.83), with the quality culture rated as a highly important factor (average 4.79). Table 2. The average of the importance ratings of the factors affecting the image and positioning of non-profit organizations ( a five-level rating scale ranging from 1 absolutely unimportant to 5 highly important) Graph 2. The chart of the average rates of the importance of factors affect ing the image and positioning of non-profit organizations Answering the question on the importance of the defined factors presented on the table for the positioning of non-profit organizations, a majority of respondents highly rated (the average 4.74) the issue of quality standard implementation and the quality culture building. The most important factors the respondents stressed are raising the political establishment awareness of the importance of non-profit organizations for the development of the society and for observing ethical norms. Employee education is also considered to be an important factor for the positioning of non-profit organizations. Although the majority of non-profit organizations deem the issue of quality systems to be highly important and contributing to a better positioning, only 10% of them have implemented the ISO 9001 quality model. This finding that can also be explained by the management reluctance to make such a decision for numerous reasons: lack of inventiveness, fear from change, lack of responsibility, inclination to improvising and unwillingness to share responsibility, should certainly be the reason for certain other research in order to get an insight into the existing dilemmas and resignation. The approach to quality management implementation in the Serbian non-profit organizations is still negative, which significantly reduces their final outcomes. In order that such a situation should be changed, it is necessary that proactively oriented non-profit organizations in Serbia accept and implement some of the quality management models. Quality management means quality revolution Š16Ë or a shift in the business paradigm that some theoreticians metaphorically term a new way of thinking in managing organizations Š17Ë. Thus understood service quality of non-profit organizations can serve harmonize the non-profit business criteria with the European criteria. The focus upon customers and their requirements, upon the processes, and upon the team work Š18Ë should be the basis of all the quality management models implementation. 5. Conclusion It is important that non-profit organizations give a serious thought to the sustainable development. Modern times impose the need to reconsider the crucial role these organizations play in the society, which should additionally make them oriented towards more innovative, more responsible and higher quality services, which implies the need for their evaluation and selfevaluation. for a timely reaction, correction of possible errors and adjustment to the requirements coming from the environment, which all contribute to achieving competive advantages in the marketplace. The authors recommend that non-profit organizations implement one of the process models of quality management if they want to achieve better performance and higher efficiency and effectiveness. The practice so far has proved that a properly implemented quality system allows for the evaluation of all performances, hence their improvement too. The evidence can be found in numerous journals in this field Š19Ë. Regardless of a large number of problems non-profit organizations encounter in the process of measuring their performance, efficiency and effectiveness, it is important that each individual employee be accountable for the work he/she performs and strive towards a permanent improvement of the quality of services and processes they provide. The key role here is the role of the management of non-profit organizations. In his contemplations concerning this matter, Drücker stresses Š20Ë: The task of management is not to make everybody boss, but to make everyone a contributor. REFERENCES Š1Ë Summers D., Quality Management: Creating and Sustaining Organizational Effectiveness, Pearson Prentice Hall, New Jersey, 2009. Š2Ë Anderson, J.C., Rungtusanatham, M., Schroeder R. A., Theory of quality management underlining the Deming management method, Academy of Management Review, Vol.19, No,3, 2004., 472-509 Š3Ë Hatry, H., Lampkin, L., An agenda for action Outcome management in nonprofit organizations, The Urban Institute Washington, D.C., dec.2001. Š4Ë Poole D. L., Davis J. K.,,Reisman J., Nelson J. E., Improving the Quality of Outcome Evaluation Plans, Nonprofit Management & Leadership, 11(4), Summer 2001. Š5Ë Groonroos, C., Strategic Management and Marketing in the Service Sektor, Swedish School of Economic and Business Administration, Helsinki, 1982. Š6Ë Foster S. T., Managing quality integrating the sup ply chain, 4th ed., Pearson, USA, 2004.str. 257. Š7Ëhttp://www.knowhownonprofit.org/organisation/qua lity/quality/models Š8Ëhttp://www.customerfirst.org/CustomerFirstStandar d.aspx The implementation of any quality standard model and the service quality evaluation creates an opportunity Š9Ëhttp://www.investorsinpeople.co.uk/needs/3min utes/pages/standardbeyond.aspx Š10Ë http://www.pqassoqualitymark.org.uk Š11Ë ECNL Study on Recent Public and Self-regulatory Initiatives and Accountability of Non-profit Organisations in the European Union, april 2009. Improving Transparency Š12Ëhttp://www.trenerski-forum.hr/hr/eticki-kodeks-i standardi-kvalitete/sokno Š13Ëhttp://www.oneworldtrust.org/csoproject/cso/initiatives/332/practical_quality_assurance_system_for_s mall_organisations_quality_mark_pqasso Š14Ë http://www.ces-vol.org.uk/index.cfm?pg=413 Š15Ë Cairns, B., Harris M., Hutchison R., Tricker M., Improving Performance? The Adoption and Implementation of Quality Systems in UK Nonprofits Centre for Voluntary Action Research, Aston Business School, Birmingham,England, november 2004 Š16Ë Spencer B., Models of Organization and Total Quality Management: Acomparison and critical evaluation, Academy of Management Review,1994. Vol.1 No 3 446-471 http://www.jstor.org/pss/258935, 20.02.2011. 14.50 Š17Ë Horn, Reger, et.al., Academy of Management Review Vol.19.No.3.1994. Š18Ë Slater, R., Integrated process management, McGrow-Hill, 1991. Š19Ë Juran , J.M., Managerial Breakthrough, Mc Graw Hill, 1994. Š20Ë Drucker, P., Postkapitalističko društvo, PS Grmeč Privredni pregled, 1995. Sustainable Water Use in 21st Century UDC: 005.52:628.1120? Marko Barišić1, Andrea Toth1, Sanja \urić1 1Faculty of Organizational Sciences in Belgrade barmar333¿yahoo.com Exposing the hidden links between consumption and the depletion of water can provide arguments for change and create a basis for formulating new strategies for water resource management. The knowledge that the impact of people on the composition of drinking water can be directly linked to overall consumption and that problems such as scarcity and water pollution can be better understood and addressed by looking at the supply chain as a whole resulted in the creation of the water footprint concept. The water footprint is an indicator of direct and indirect water consumption by a producer or a consumer. The mission of water footprint is to promote water footprint transition to sustainable, equitable and efficient use of freshwater resources worldwide. 1. Introduction Water is a renewable, however, a scarce natural resource. The demand of various sectors of economy for water frequently exceeds the local availability, which is likely to be further aggravated by the effects of climate changes Š1,2Ë. Exposing the hidden link between the consumption of water and the depletion of water can provide arguments for change and create a basis for formulating new water resource management strategiesŠ3Ë. 2. State and outlook The 2009 European Environment Agency (EEA) report on water resources reveals that the consumption of water in a large number of regions of the European continent is not sustainable Š4Ë. Throughout the European continent, 81% of the total quantity of freshwater is pumped from surface waters such as lakes and rivers, to be mostly used in industry, energy production and agriculture. Contrary to this, public supplies primarily lean on ground waters due to their generally superior quality (Figure 1). While almost all the water used in energy production returns into the watercourse, this does not apply for a large portion of water pumped to be used in agriculture Š4,5Ë. Figure 1. Exploitation of freshwater resources in Europe in 2009 by sectors (million m3/year), source: EEA In Europe as a whole, 44% of pumped water is used in the energy production, 24% is used in agriculture, 21% water is used in public water supply and 11% is used in industry. The above listed data, however, do not reveal the significant differences in water consumprion among the regions of the continent. Thus in Southern Europe, 60% of the total quantity of pumped water goes to agriculture; in certain regions the quantity amounts to as high as 80% Š4,5Ë. Water exploitation index (WEI), the indicator of the annual water catchment expressed as a percentage of longterm disposable freshwater resources, shows that river watersheds are over-exploited, especially in the Mediterranean region in Europe (Figure 2). The warning treshold, on the basis of which the regions that are not endangered by this problem are differentiated from those suffering shortages of water, amounts to 20%, whereas the shortage of water is serious in the regions where the WEI exceeds 40% Š5,6Ë. Figure 2. WEI in Europe towards the end of 1980s/beginning of 1990s compared to the latest available years (1998-2007), source: EEA The solution to the shortage by pumping still larger quantities of water from the surface and ground watercourses is short-termed as overuse of water has a highly negative impact upon the quality and quantity of the remaining water, as well as upon ecosystems that depend on it. It is necessary that requirements be reduced in order that the quantities of water people pump should be reduced to a minimum and the efficiency of water use be improved Š4,5,7Ë. 3. Water footprint concept The knowledge that the human effect upon the composition of drinking water can be directly related to the overall consumption and that the problems such as shortage and pollution of water can be better understood and resolved by observing the production and supply chain as a whole, resulted in 2002 in the creation of the water footprint concept as a water consumption indicator Š8Ë. 3.1 WATER FOOTPRINT STRUCTURE Water footprint has three components Š3Ë: 1. blue water footprint 2. green water footprint and 3. grey water footprint. 1. The blue water footprint refers to the drinking water consumption from the global water resources (surface water and ground water). The consumption of drinkable water includes evaporation, water integration into products where it does return to the same watershed or does not return there over the same period of the year. 2. The green water footprint signifies the quantity of consumed water from the global green water resources (rainwater stored in the soil as moisture). 3. The grey water footprint describes the quantity of water that is polluted due to the production of goods and services for individuals or a social community. 3.2 Water footprint classification On the basis of the consumer categories as a criterion, the following types of water footprint can be distinguished Š3Ë: 1. individual water footprint 2. corporate water footprint and 3. national water footprint. 1. The individual water footprint refers to the overall quantity of drinking water an individual consumes directly or indirectly. The direct water consumption is the water consumed by the individual at home. The indirect water consumption is the total quantity of drinking water used in the production of goods and services that this individual consumes Š3Ë. In the 1997-2001 period, the average water footprint in the world was 1,240m3 water per capita annually Š9Ë. 2. The corporate water footprint is defined as the total quantity of drinking water directly or indirectly used in business doing and business support. The direct corporate water footprint is the quantity of water the producer uses in manufacturing or ancillary activities, whereas the indirect water footprint refers to the consumption of water in the producers supply chain Š3Ë. The increase in the water consumption and the excessive use of water systems has already resulted into a dramatic deterioration of aqueous ecosystems worldwide. This imbalance resulted in freshwater no longer being available in certain regions. The consequence of the overconsumption of water will be manifold; at the very exit, the offers fall due to considerably higher prices for drinking water. This means that companies will have to separate the management of the risk of high direct water consumption at their own sites from that of indirect water consumption in their supply chains Š10Ë. 3. The national water footprint indicates the quantity of water used in goods and services, consumed by the members of a certain nation. There are the internal and the external national water footprints Š3,9Ë. The internal national water footprint is defined as the use of domestic water resources in the production of goods and services consumed by the citizens of a certain nation. It is the sum of the annual quantity of water from the domestic water resources used in agriculture, in the industrial sector and in the households, reduced for the quantity of exported virtual water related to the exports of national products Š3,9Ë. The external national water footprint is the annual quantity of foreign water resources used in other countries in the production of goods and services imported and consumed by the citizens of a certain country. It is equal to the difference between the quantity of virtual water imported into the country reduced for the quantity of virtual water exported to other countries (the reexport of imported products) Š3,9Ë. The four major factors determining the countrys water footprint are the following: 1. scope of consumption (related to the gross nation al income), 2. consumption pattern (e.g., high compared to low consumption of meat), 3. climate (conditions of growing) and 4. agricultural practice (water use efficiency). In rich countries, people generally consume more goods and services, which is immediately reflected into a bigger water footprint. It is not, however, only the scope of consumption that affects the peoples demend for water. Also relevant is the contents of the consumer basket because the production of certain goods requires large quantities of water (beef meat, rice). In many poor countries, the combination of unfavourable climate conditions (massive evaporation) and bad practices in agriculture (resulting into a low water productivity) contribute to a big water footprint. The basic factors affecting bad agricultural practice, and consequently a big water footprint, are the inadequate price of water, subsidies, the implementation of an inefficient water technology and the lack of insight into simple water saving measures employed by farmars. The impact of different determinants varies from one country to another. The water footprint per capita in the USA is big partly because the consumption of meat is high (three times as high as the average world consumption of meat). The water footprint per capita in Iran is relatively big due to a low yield of crops and partly due to evaporation Š9Ë. The problems concerning water are closely related to the structure of the global economy. A large number of countries have significantly reduced their water footprint by importing water-intensive goods from other countries. This in turn increases the burden on the water resources in the countries exporters of such products, where there is frequently a lack of mechanisms for preservation and prudent management of water Š11,12Ë. Not only the governments, but also the consumers, business entities and the communities of the civil society can play an important role in achieving a better management of water resources Š12,13,14Ë. Figure 3. The share of major consumers in the global water footprint, source: Hoekstra and Chapagain, 2007 Estimares are that the global water footprint amounts to 7,450 Gm3 annually. Eight countries India, China, the USA, Russia, Indonesia, Nigeria, Brasil and Pakistan together have a 50% share in the global water footprint. The biggest consumers of global water resources are India, China and the USA (Figure 3) Š9Ë. Absolute nimbers indicate that India is a country with the biggest water footprint in the world 987 Gm3 annually. However, as the population of India makes 17% of the world population, the share of this countrys population in the global water footprint is only 13%. The population of the USA is characterised with the biggest per capita water footprint in the world 2,480 m3, whereas China has a relatively low annual water footprint of 700m3 per capita. Countries differ both in the size of the water footprint and in its composition (Figure 4) Š9Ë. Figure 4. National water footprint per capita and the share of different consumption categories of certain countries, source: Hoekstra and Chapagain, 2007 The consumption of industrial products in rich countries contributes to a relatively high degree to the total water footprint in comparison with the developing countries. Thus the consumption of industrial products contributes significantly to the total water footprint of the USA (32%), but not in India (2%). The contribution of external water footprint to the total water footprint is rather high in Japan (65%) in comparison with the USA (18.4%), China (6.5%) and India (1.6%). 3.3 Product waterprint The water footprint of a product is defined as the total quantity of freshwater used directly or indirectly in the manufacturing of a product Š3Ë. The analysis of technological procedures allows for calculating the quantity of water used in the production of certain types of goods. Good examples to illustrate this are the following data Š15Ë: as much as 16,000 l of water is required to produce 1 kg of beef meat, 900-1,350 l of water is required to produce 1 kg of weat, 3,000 l of water of water is required to produce 1 kg of rice,  900 l of water of water is required to produce 1 kg of corn, 140 l of water of water is required to produce 1 cup of coffee, tThe production of 1 l of milk requires 1,000 l of wa ter, 10 l of orange juice needs 1 l of fuel for production and transport and 220 l of water for irrigation and washing the fruit. The quantification of water consumption per product provides an insight into an uneconomical consumption of water and stress the need to improve the technological processes. 4. Waterprint mission An international network of governments, corporations, non-government organization and the United Nations bodies was established in 2008 the Water Footprint Network to coordinate the efforts in the development and dissemination of knowledge of the water footprint concept and methods Š3Ë. The water footprint mission means the promotion of transition towards a sustainable, fair and efficient use of freshwater resources worldwide Š15Ë: by improving the water footprint concept that is spatial and time explicit indicator of direct and indirect water consumption by the consumers and producers; by promoting the water footprint concept in the communities of people, state bodies and companies and their understanding the manner in which the consumption of goods and services, as well as production chains affect water consumption and drinkning water; and  fostering those types of water management that reduce the negative ecological and social effects of the water footprint by the communities of people, states and companies. 5. Conclusion Water crisis could be avoided or its consequences for the overall development could be mitigated if the following principles on water sustainability be observed: reduction of the specific consumption of water in all the consumption spheres by gradual transition to technologies with compulsory recirculation and reuse of water, planning urban and industrial development in view of the available water resources, in accordance with the capacities of water management and the problems of water protection, protection of existing and potential drinkable water sources using the measures of spatial planning and economic policy, purification of industrial and communal waters prior to their sinking into watercourses as the most important measure of environmental protection and improvement, antierosive protection of watersheds and river regulation by regulation of banks as a precondition for the urbanization of settlements. REFERNCES Š1Ë Hoekstra A. Water scarcity and international trade: The need to extend the scope of water resources management, In: C. Bastian et al., Wasser Konfliktstoff Jahrhunderts, Universitätsverlag Winter, Heidelberg, pp 121-141, 2008. des 21. Š2Ë Hoekstra A. The relation between international trade and freshwater scarcity, Working Paper ERSD-2010-05, January 2010, World Trade Organization, Geneva, 2010. Š3Ë Hoekstra A, Chapagain A, Aldaya M, Mekonnen M. Water footprint Manual, Enschede, 2009. Š4Ë European Environment Agency. Water resources across Europe, EEA Report No 2, Copenhagen, 2009. Š5Ë The European environment state and outlook . Water resources: Quantity and flows. EEA, Copenhagen, 2010. Š6Ë European Environment Agency. @ivotna sredina u Evropi: stawe i izgledi u 2010. godini?. EEA, Copenhagen, 2010. Š7Ë Hoekstra A. The global dimension of water governance: Why the river basin approach is no longer sufficient and why cooperative action at global level is needed, Water, Vol. 3, No. 1, pp 21-46, 2011. Š8Ë Hoekstra A, Hung P. Virtual water trade: A quantification of virtual water flows between nations i relation to international crop trade, HIE Research Report No. 11, Delft, 2002. Š9Ë Hoekstra A, Chapagain A. Water footprints of nations: Water use by people as a function of their consumption pattern, Water Resources Management, Vol. 21, No. 1, pp 3548, 2007. Š10Ë Liu J, Orr S. Water footprint overview in the governmental, public policy, and corporate contexts, In: Lundqvist, J. (ed.) On the water front: Selections from the 2009 World Water Week in Stockholm, Stockholm International Water Institute, Stockholm, pp. 73-79, 2010. Š11Ë Chapagain A, Hoekstra A. The global component of freshwater demand and supply: An assessment of virtual water flows between nations as a result of trade in agricultural and industrial products, Water International, Vol. 33, No. 1, pp 19-32, 2008. Š12Ë Verkerk M, Hoekstra A, Gerbens-Leenes P. Global water governance: Conceptual design of global institutional arrangements, UNESCO-IHE Research report No. 26, Delft, 2008. Š13Ë SABMiller, WWF-UK. Water footprinting: Identifying & addressing water risks in the value chain, SABMiller, Woking, UK / WWF-UK, Goldalming, 2009. Š14Ë SABMiller, GTZ, WWF. Water futures: Working together for a secure water future, SABMiller, Woking, UK / WWF-UK, Goldalming, 2010. Š15Ë www.waterfootprint.org Recruitment and Selection of Student-volunteers: a Multicriteria Methodology UDC: 005.966.2:378.126 Violeta Cvetkoska, Biljana Sekulovska - Gaber, Marijana Sekulovska Faculty of Economics-Skopje vcvetkoska¿eccf.ukim.edu.mk SPIN 11, 01-02 november 2011, Belgrade, Serbia The Career Center operating within the frameworks of the Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, published an announcement for recruiting students-volunteers, thus giving the students an opportunity to actively participate in the Facultys operations and consequently add value to their studies. Considering the notion that recruitment requires search, attraction and provision of pool of candidates who are to be further subjected to a process of selection the result of which will be selection of those candidates who best meet the requirements, the team of experts from the Career Center set a framework for making the selection process in four phases. It is this papers objective to describe and present the selection process for the purpose of which one of the best known and most often applied methods of multicriteria decision making is being used i.e. the AHP Method (the Analytic Hierarchy Process Method). 1. Introduction On the occasion of year 2011 announced by European Union as a European Year of Volunteering, under the motto: By volunteering we create better society, the Career Center at the Faculty of Economics-Skopje, Ss. Cyril and Methodius University in Skopje, published an announcement for recruiting students-volunteers who are to be engaged within the frameworks of the Facultys operations. Working in the direction of setting and fulfilling the already set goal: From the students to the students from the Faculty to the Faculty the Career Center published this announcement for recruiting students-volunteers studying at the Faculty of Economics-Skopje, thus following the European initiatives for creating a better society in which students can really make a difference by becoming active within the frameworks of their high-educational institution. The precondition for the students becoming eligible for applying to this announcement, was to have completed the first year of their studies, and the required application documents were the following ones: 1. Certificate for being a student at the Faculty (with specified year of studies); 2. Short CV (Curriculum Vitae); 3. Recommendation issued form one Professor; and 4. Short essay (containing not more than 100 to 150 words) on the topic: I can change the world…I will start with myself…I WILL VOLUNTEER!. In order to make the right selection of students-volunteers, a team of three experts at the Faculty of EconomicsSkopje (Head of the Career Center, Vice-Dean of Academic Affairs and an Assistant at Organizational subjects Sciences and Management, at Management and Mathematical Methods and Models, the Assistant be and Economical Science the ing certified in the Republic of Macedonia as a Human Resources Professional) set a framework for carrying out the selection process in four phases. In the first phase of the selection process, the submitted application documents are to be inspected; in the second phase the ranking is to be made by application of the AHP Method; the third phase is the phase when the candidates are to be interviewed (for this purpose a structured interview is to be applied) and in the last, fourth phase the final selection of candidates is to be made, in accordance with the suitability of their profile for the volunteers vacancies. This paper is structured as follows: besides the introduction in Section 1, the second part gives a short overview of both the recruitment process as well as the selection process. The third part provides a detailed presentation of the four phases applied during the selection process, whereas the concluding remarks are given in Section 4. 2. Recruitment and selection Recruitment and selection of new candidates are two pretty complex processes that are difficult to be successfully realized, even when well focused. The organization which tries to carry out both of the processes at the same time will probably not carry out any of the two Š6Ë. 2.1. The recruitment process Recruitment is a process of attracting candidates for vacancies, the candidates possessing knowledge, abilities, skills and personality features necessary for task performance. Recruitment can also be defined as practice or activity carried out by the organization for the purpose of identifying and attracting its potential employees Š1Ë. However, it is not only that the recruitment process intends to attract large number of candidates. Namely, if the process creates a multitude of non-qualified candidates, the organization should make greater efforts for selecting people, and this selection would fill in small number of job positions. What is often used as basis for assessing the number of required applications for the purpose of selecting the right candidates is the Pyramid of Recruitment Benefit (Figure 1), details can be found in Š10Ë. The experience of many companies shows that only 1/6 of the received applications are usually included in the detailed selection process; however these indicators can change in accordance with the number of interested candidates who apply at that moment Š4Ë. Figure 1. Pyramid of Recruitment Benefit However, as Barber Š1Ë points out, it is important that employers do not consider the recruitment process to be finished at the point at which a pool of applications has been received. It continues during the short-listing and interviewing stages and is only complete when an offer is made and accepted. Until that time there is an ongoing need to ensure that a favorable impression of the organization and an employer is maintained in the minds of those whose services they wishe to secure. There are two fundamental sources of candidate recruitment: the first one consists of external recruitment i.e. recruitment of candidates outside the organization, those who are present at the actual labour market, whereas the second one refers to internal recruitment i.e. attraction of potential candidates in the organization itself, for more details see Š6 and 11Ë. 2.2. The selection process All the wise strategies and advanced technologies in the world would not be as effective as they actually are if right people do not stand behind them as their managers. Jack Welch (Former Chief Executive Officer of General Electric) One of the most important areas in human resource management is the selection of right people for right job positions. Selection is a procedure that is implemented in accordance with previously determined standardized methods and techniques, standard for certain job position, for the purpose of selecting those ones who best suit the needs of the organization. The selection covers evaluation and candidates assessment in terms of their work performance as well as projections about their future success at the job position and the working organization. The organization is the one that decides who is to be selected and who is not, in accordance with the strategy, the organization culture and the concrete job requirements Š4Ë. The selection methods and procedures for collecting relevant data can be divided into two larger groups: 1. Standard-conventional, and 2. Unconventional-alternative. Conventional methods and sources of data are the following ones: application form, Letter of Intent, short curriculum vitae (CV), documents and education degree diplomas, recommendations, psychological tests, interview, case tests, centers for individual potential assessment etc. Unlike the standard methods and sources of data, the unconventional methods and sources of data refer to: polygraph examinations, graph analysis, drugs examination, astrology etc. The above mentioned methods and sources of data are explained in detail in Š3, 6 and 11Ë. 3. The four phases of the selection process Before carrying out the recruitment and the selection of students-volunteers activities, it is necessary that we determine the policies and strategies regarding volunteering. Strategy as planned action governs the whole recruitment and selection processes because it determines the following: (cid:123) What kind of students institution needs; (cid:123) Whether the students are to be recruited internally or externally i.e. from the organization or outside it; (cid:123) Whether the students are to adapt to the job or the job is to adapt to them; (cid:123) Whether the activities are to be directed to developing the students or towards using their actual competences; (cid:123) Whether individuals or team players are to be preferred; (cid:123) Which criteria and methodological tools are to be used during the selection. What is visible in our Announcement for recruiting students-volunteers, published at the web site of the Faculty of Economics-Skopje1, on 20.05.2011 is that we are applying the internal source of recruitment. As advantages of the internal source of recruitment we outline the following ones: (cid:123) The student is well familiar with the institution, its strengths and weaknesses; (cid:123) It has positive influence on the internal motiva tion within the institution and (cid:123) It strengthens the perception that the institution takes care of good students. In the section that follows the four phases of the selection process are going to be explained in detail. 3.1. FIrst phase checking the submitted documentation Within the frameworks of this phase, our team prepared a form for identification of the documents submitted on behalf of the candidates. What was required to be filled in this document was the name and surname of the candidate, his/her index number, and in the table that contained the list of the required documents, it was necessary to circle the symbol (cid:57) if the candidate submitted that document or the symbol x if the document was not submitted. At the end of the form two options were given: 1. The candidate submitted the required application documents; 2. The candidate has not submitted the required ap plication documents; Out of these two options, and in accordance with the circled symbols in the form of identification, it was necessary to select the appropriate one. All the candidates who submitted the complete application documents qualified in phase two. 1 http://www.eccf.ukim.edu.mk/ 3.2. Second phase - candidates ranking: analytic hierarchy process (AHP) method In the second phase candidates ranking, our team determined 7 criteria and 5 sub-criteria for each of the criteria according to which candidates were to be ranked, and prepared a form for their assessment. In order to be capable of determining the importance of each criterion we implemented the multicriteria method called Analytic Hierarchy Process (AHP) Method. In part 3.2.1 we give a short overview of the AHP Method, whereas the appropriate AHP model which represents a simplified image of reality is presented in part 3.2.2. 3.2.1. The analytic hierarchy process The Analytic Hierarchy Process Š7Ë is a powerful and flexible decision making process which is helpful in setting priorities and making the best decision when both qualitative and quantitative aspects of a decision need to be considered. The AHP is one of the most widely exploited decision making methods in cases when the decision (the selection of given alternatives and their prioritising) is based on several criteria/subcriteria Š2Ë. Complex decision problem solving, which this method uses, is based on the problem decomposition into a hierarchy structure which consists of the goal, the criteria, sub-criteria and the alternatives Š5Ë. The method of application can be explained in four steps Š9Ë: 1. Define the problem and determine the kind of knowledge sought. 2. Structure the decision hierarchy from the top with the goal of the decision, then objectives from a broad perspective, through the intermediate levels (criteria on which subsequent elements depend) to the lowest level (which usually is a set of the alternatives). 3. Construct a set of pairwise comparison matrices. Each element in an upper level is used to compare the elements in the level immediately below with respect to it. 4. Use the priorities obtained from the comparisons to weigh the priorities in the level immediately below. Do this for every element. Then for each element in the level below add its weighed values and obtain its overall or global priority. Continue this process of weighing and adding until the final priorities of the alternatives in the bottommost level are obtained. To make comparisons, we need a scale of numbers that indicates how many times more important or dominant one element is over another element with respect to the criterion or property with respect to which they are compared. The fundamental scale of values to represent the intensities of judgements is shown in Table 1.  Importance intensity 2,4,6,8 Reciprocals Definition Equal importance Moderate importance of one over another Strong importance of one over another Very strong another Extreme importance of one over another Intermediate values Reciprocals for inverse comparison importance of one over Table 1. The Fundamental Scale More on AHP Method see in Š7, 8 and 9Ë. 3.2.2. AHP based model for ranking student-volunteers On the basis of the determined 7 criteria, being the following ones: structure of CV, computer skills, foreign languages, students motivation to volunteer at the Faculty of Economics-Skopje, clear and precise expression skills, creativity and initiative2, as well as the subcriteria for each of the above listed criterion (poor, good, average, very good and excellent) we developed our AHP model that will enable us do the candidates ranking (Figure 2). 2 From the submitted CV we evaluate the first three criteria (the structure of CV, the computer skills and foreign languages), and from the short essay we assess the students motivation to volunteer at the Faculty of Economics-Skopje, how clear and precise his/her expression is, as well as his/her creativity and initiative. By using the Saatys scale that consists of 9 degrees, we make the necessary comparison regarding the stated criteria and sub-criteria in pairs and by calculating the model we get the appropriate values for each of them. For the purpose of assessing the candidates and rank them appropriately we made a form that besides filling in the candidates name and surname, his/her index number and gender, it is necessary that for each of the 7 criteria for which 5 sub-criteria are given, and in accordance with the collected data about the candidate, the appropriate assessment sub-criteria be circled. In the same form, it is necessary to fill in the results from the assessment i.e. the rank of the candidate got with the AHP method, which serves for the purpose of deciding whether to invite the candidate to an interview or not. At the end of the form, it is necessary that the evaluators (the expert team) state their name and surname, the position they hold, and sign the form. Figure 2. AHP Model for candidates ranking 3.3. Third phase - interviewing 4. Conclusion Within the frameworks of the third phase we decided to make a structured interview and for the purpose of doing this we focused on four criteria that are essential for the candidate becoming a volunteer at our institution, the criteria being the following ones: time management, confidentiality, personal communication and interpersonal skill and organizational skills. For each of these criteria we made questions that each of the candidates is to be asked, and in accordance with the candidates response the criteria are to be valued (as follows: 0-insufficiently; 1-less than acceptable; 2-acceptable; 3more than acceptable; 4-outstanding). In order to be capable of assessing the candidates we prepared a form in which the above mentioned criteria are to be evaluated. 3.4. Fourth phase - selecting students-volunteers and informing them According to the results from the interview and the recommendation from one course professor, the candidate can be selected as a volunteer at the Faculty of Economics-Skopje, not accepted as a volunteer, or put on the waiting list (Figure 3). It is in this phase that the candidates are to be informed about the result they achieved. Figure 3. Results from the selection process In this paper we presented how the processes of recruitment and selection can be carried out in a high-education institution for the purpose of selecting students volunteers who will participate in the institutions operations. The selection process was presented with its four phases including the multicriteria AHP method, whereas the results that we will get are going to be subject topic in the next article. REFERENCES Š1Ë Barber, A.E., Recruiting Employees, Thousand Oaks, CA: Sage, 1998. Š2Ë Begicevic, N., Blazenka Divjak and Tihomir Hunjak, Prioritization of e-learning forms: a multicriteria methodology. Centarl European Journal of Operations Research, pp.1-15. Available at: http://www.springerlink.com/content/03111h2h3280 h556/fulltext.pdf, 2007 Š3Ë Bojadjioski, D., and Eftimov, Lj, Menadzment na covecki resursi, prvo izdanie, Ekonomski fakultetSkopje, 2009. Š4Ë Gligorovska, E., Regrutacija i selekcija (priracnik), CS Global HR Academy, 2010. Š5Ë Hunjak, T., and Jakov?evi?, D., AHP based model for bank performance evaluation and rating. ISAHP, Berne, Switzerland, 2001. Š6Ë Noe, R.A., Hollenback, J.R., Gerhart, B., and Wright, P.M., Human resource management, The McGraw-Hill Companies, Inc., 2000. Š7Ë Saaty, T. L., The Analytic Hierarchy Process, McGraw-Hill Book Co., N.Y., 1980. Š8Ë Saaty, T.L., and Vargas, G. L., Decision Making in Economic, Political, Social and Technological Environments with the AHP. RWS Publications, Pittsburgh, PA, 1994. Š9Ë Saaty, T.L., Decision making with the analytic hierarchy process. Int. J. Services Sciences, Vol. 1, No. 1, pp.83 98, 2008. Š10Ë Siber, F.B., Menadjment ljudskih potencijala, Zagreb, 1999. Š11Ë Torrington, D., Hall, L., and Taylor, S., Human resource management, Pearson Education, 7 th ed, 2008. Effects of Economic Crisis on Entrepreneurship in Culture UDC: 330.322.1:008(497.11) ; 338.124.4 Kočović Milica Istitute of Insurance and Actuaries, Belgrade mickocovic¿gmail.com The subject of this work is the effect of macroeconomic environment on cultural market development level in a country. The work presents the analysis of the influence of economic crises on certain segments of culture in chosen developed cultures with the stress on financial resources. The work also analyses the complex situation caused by problems on the cultural market in Serbia as well as the importance of entrepreneurship in culture for finding additional financial resources for funding culture. 1. Introduction The condition and prospects of the culture market should be viewed in a macroeconomic environment in which it operates. The underdevelopment and stagnation of the culture market in Serbia is a result of a decades long crisis in this country, which was additionally aggravated by the global economic crisis. Modern macroeconomic trends in Serbia are the result of a long lasting poor policies, wars, sanctions, delayed transition, problematic privatization. The crisis Serbia has suffered for the last twenty years, permeated by the negative impacts of the global economic crisis that spilled over to this country too, revealed all economic weaknesses and resulted into a general economic uncertainty accompanied with social displeasure. These economic conditions have certainly affected the field of culture in a most negative manner. The topic of this paper hence is the effects of economic crisis upon the conditions in culture in general, and upon the culture market in particular. The effects of this impact will primarily be analysed from the aspect of the financial source problems on the example of the selected developed countries in order to get an insight into the opportunities to resolve this unfavourable situation the culture in Serbia. The effects of culture and cultural values upon the economic development of a country have been the topis of many an academic and empiric work. The studies on the economic effects of culture and art are the instrument for planning the cultural life and stimulating public financing of the cultural institutions activities. Distinguished among the key cultural factors that determine the economic performance are the employment and the earnings of the culture sector itself, the elements of cultural heritage viewed in terms of real property, as well as cultural tourism (Herrero et al., 2006). Myerscough (1998) has proved that direct investments into the sectors of art and culture stimulate spending/consumption in other sectors, which contributes to the countrys overall economic and social development. On the other hand, scientific works dealing with the problem of counter effects, i.e., the effects of economic trends upon the sector of culture are relatively rare. If it is possible to prove that there is a feedback between culture and economy, the analyses of positive economic effects of the cultural development become meaningless in the unfavourable economic conditions. The current world economic crisis has just intensified the research into the problem of culture in a macroeconomic environment (Madden, 2009). In view of the global pertinence of the issues of prospects of cultural development in unfavourable economic conditions, it is interesting to explore whether and to which extent the crisis was reflected upon the culture and art sectors, both in the selected developed countries and in Serbia. 2. Effects of macroeconomic environment on the culture market In its broadest sense, culture is understood as a set of traditions, beliefs, valuations and respective patterns of behaviour when taken as a set of features of a given, already defined group. As a trade (activity), culture is described as a set of human activities employed in producing and reproducing knowledge, artistic values and beliefs (including religious beliefs) and preferences as to values. This is the broadest understanding of culture as an activity which, among other things, includes educational, artistic and religious institutions, as well as a number of science-, art- and religion-oriented media (Madžar, 2004, p.23). In a number of areas economic conditions do affect the sector of culture in a country. Since the direct effect of unfavourable economic trends is primarily reflected in the reduced incomes of cultural institutions, this analysis will primarily focus upon the sources for financing culture. The sources of income of cultural institutions are in the first place their own earnings, however, there are substantial inflows coming from state institutions and agencies, from the economic sector, physical entities and foundations and legacies. The stress on the own sources of culture introduces the term culture market which provokes both positive and negative reactions. The implementation of the culture market threatens to neglect the interests of artists, art, culture, for one and only goal to make money. Similarly, it is rather difficult to value the works of art. On the other hand, the effect of the financial crisis was that the funds for public financing of culture have significantly shrunk, threatening the survival of many of its segments. It is in such a situation that the introduction of culture market and entrepreneurship in culture are justified. A logical starting point in studying the impact of the economic upon the cultural spheres are the financial sources of cultural institutions. The differences in the method of defining and classifying the categories of expenditures allocated to culture make a comparative analysis among countries extremely difficult. A majority of previously conducted research within which a comparison was made between these expenditures on an international level classifies culture and art as follows: museums and galleries, theatres, visual arts, festivals, support to literature promotion and creation as well as support to film production. The alarming fact is that the reports on financing culture do not inform about the expenditures meant for libraries, archives, cultural heritage, professional improvement in the field of art, capital investments (e.g., building of a new theatre) and indirect financing through tax reliefs. (Galloway, 200, pp. 7-9) The concept of culture the UNESCO defined for the purposes of an international comparability of economic statistics includes nine categories: cultural heritage, printed materials and literature, music, theatric art, audio media, audio-visual media, social activities, sports/games and environment/nature. (Haydon, 2000). The falling trend in public financing of culture and art was recorded as early as 1990s in the majority of member countries of the European Organization for Economic Cooperation and Development (OECD). This trend was especially visible in the United States of America, contrary to Germany and Ireland in which the endowments for cultural purposes were significantly increased over the same period. The interpretation of the data on the national spending in the field of culture, however, is closely connected to broader socio-economic and political systems of a respective country. For example, the fact that the estimated public expenditure for culture in 2000 amounted to 85 dollars per capita in Germany and only 6 dollars per capita in the USA is explained by a different ratio in the participation of the private and public sectors in the economies of these two countries (National Endowments for the Arts, 2000, p.1). In the unfavourable economic conditions, the public sources of endowments to cultural institutions and events are impared in two ways. First, the ministries in charge of culture increasingly cut the subsidies for culture. Second, the lower level, local governments reduce the funds meant to fund their cultural policies, thus additionally burdening the budgets of cultural institutions. In the conditions when the population finds it more and more difficult to solve the problems of making the ends meet, the arguments in favour of public funding for culture gain very little support. Faced with the current economic crisis, the majority of European countries resort to reducing the expenditures from the state budget for cultural purposes. In 2010, such restrictions were carried out, among others, in Estonia (the reduction of budget by 9% followed a significaant raise of the tax rate for added value in 2009, which is brought into connection with the fall in the rate of visits to museums by about 30%), Belgium (4.4 million euros were frozen, whereas further grants are currently out of the question), Germany (certain federal states reduced their expenditures, primarily for the film industry, by about 15%), Spain and Portugal. (SICA Dutch Centre for International Cultural Activities, 2010, pp. 1-2) Nearly all sectors of culture and art in Great Britain face the danger of financial unsustainability. An interesting fact is that the reduction of expenditures so far have hit art to a relatively higher extent compared to the segments of sports and media. Practically, there is an increasing number of people who support the attitude that the entire cultural sector should be left to an entirely market method of financing. (SICA Dutch Centre for International Cultural Activities, 2010, p.4) The reductions and restraints in the state expenditures hit different cultural segments differently. In the Netherlands, for example, the state budget allocated for the culture was reduced by 20% (about 200 million euros) in 2010. Here, the largest portion of this reduction refers to live arts, whereas the fields of cultural heritage and amateur arts retained the major portion of the previously allocated funds from the public sources. On the other hand, Sweden decided in favour of a somewhat different approach to solving the problem of reduced ability to finance culture, in comparison to other European countries. Namely, while smaller cities reduced their own expenditures for culture, an increase in the budgets for culture was achieved on the regional level as well as on the levels of bigger cities. This means the recognition of the innovative role of culture and of creative industries, however, to the detriment of the traditional forms of art that previously prevailed. A similar tendency is observed in Norway, where the state budget for culture was increased in that very 2010. The problem of ensuring subsidies from the private sector, however, still remains. (SICA Dutch Centre for International Cultural Activities, 2010, p3) The changes in the behaviour of the consumers of cultural contents, caused by an unfavourable economic environment, may have substantial negative effects for the financial position and the development opportunities of cultural institutions. According to the research, the cultural institutions in the United States of America recorded a 5-30% fall in the income from the membership fees and sales of tickets in 2008. Other forms of earnings, such as earnings from renting facilities and commercial sales were also reduced by 10-20%. An especially substantial fall was observed in corporate donations and sponsorships (20-50%), whereas the reduction in incomes coming from public sources amounted to 10%, with an expected tendency of further fall. (Helicon, 2009b, p.4) In the conditions of the reduced interest of the public, the organizations that cover their operative expenses by advance sales of tickets are in a specifically sensitive position. Here, the reduction in total incomes from the sales of cultural institutions is a result of a combined effect of the reduced sales scope and the service prices. In gloomy times, tickets for cultural events are considered to be luxury goods, hence the demand that their price should be lowered. Besides, the terms of granting credit lines become increasingly stricter, while the institutions the credit users face the problem of money flows necessary to repay loans regularly. One method of mitigating the negative effect of the reduction in the average amount of donations upon the financial standing of cultural institutions can be attracting as many individual sponsors as possible, through marketing activities. The employees in the cultural sector are especially badly hit by the economic crisis. In order to gain material savings, cultural institutions are forced not only to stop further hiring, but also to reduce compensation, reorganize and consolidate the existing jobs. Furthermore, research show that the largest number of the employees in cultural institutions that are made redundant were actually engaged in administrative jobs, and only then in the jobs of artistic or educational nature. (Helicon, 2009a, p.6) It is for the above described reasons that entrepreneurship gains in importance since numerous segments of culture are left to their own means and have to find ways of independent financing to survive. The entrepreneur in culture is the one who proposes projects, gives innitiative for the realization of certain ideas, regardless of whether they are profitable or not, raises funds to finance the completion of his project, and provide the fees for himself as the project author and executor. ([ešić, M., Stajković, B., Beograd, 2007, p.116). The stress should be on private publishing, music and video production companies, web-site agencies, agencies for mediation in culture, artisan shops for the repair and restauration of antiquities, paintings, for binding old and rare books. It is also possible to set up galleries, bookstores, agencies providing eduactional services such as courses in ballet, acting, painting, etc. 3. Effects of crisis upon the cultural situation in Serbia According to the methodology of the Statistical Office of the Republic of Serbia, the notion of culture covers cinemas, theatres, broadcasting corporations, archives, libraries, museums, publishing industry, philcharmonic and symphony orchestras and registered cultural real estates. In a narrower sense, culture includes creative, artistic and entertainment activities, the work of libraries, and collections/legacies. archives, museums, galleries As regards culture financing in Serbia from public sources, the Law Amending the Law on the Budget of the Republic of Serbia for the year 2010 provides that subsidies for culture amount to 378-366 thousand dinars, which makes approximately 0.0485% of the total expenditures and spending finaced from the budget. The Law on the Budget of the Republic of Serbia for the year 2011 provides the same amount for the cultural purposes in an absolute sense, however, its relative participation is reduced to 0.446%. On the basis of the comparative budget for the culture of the Ministry of Finance RS, a significant tendency of fall can be observed in the 2006-2011 period. In the domain of specialised services, the largest portion of finances is allocated to creativity, primarily film-making (35.8%), literature (19.3%) and international cooperation in creativity (19.6%). Table 1: Comparative survey of the culture budget for Table 2: Average net earnings of employees in selected 2006-2011 period (in 000 dinars) domains in Serbia in the 2000-2011 period Programme activities Specialized services Subsidies International mambership fees Transfers Grants  1558069 880000 1236422 670421 985153 1181759 1621037 551000 945690 332236 385802 378366 - - - - 40000 300000 325201 240600 180000 200000 128000 162800 102800 150000 170000 - Source: Ministry of Culture, Information and Information Society of the RS (2001),Bulletin, Beograd,p.71 In addition to the role of the central administration in financing cultural development, special role belongs to local autonomies, therefore it is of interest to get an insight into these. In accordance with their political, legal and financial authority to govern the cultural development on their territories, cities allocate part of their budgets to finance cultural institutions in the domains of the employees earnings, investments, technical equipment and maintenance, cultural manifestations funding, etc. According to the results of the analysis of the cultural policies on a representative sample in the cities in Serbia, the average participation of expenditures for culture in the total budget amounted to 8.07% in 2009, while this same participation was 6.52% in 2006. Dominant in the 2009 budget of the observed cities allocated for culture are the employees salaries (about 70%). (Institute for the Study of Cultural Development of the RS, 2009, p.17) Viewed from an economic aspect, the condition of the cultural sector in a country is described, among all, by the data on the number of employees and their salaries in the sector. They serve, together with the data on the public, and then the private sources of financing, to position the cultural sector in relation to other sectors of the national economy in the analysis. According to the data of the Statistical Office of the Republic of Serbia, the level of the net earnings in the cultural sector in Serbia is characterised by a constant rise over the first decade of the 21st century. As regards individual segments within the culture, a relatively highest level of earnings is achieved in the publishing industry. The lowest level and the most dramatic fluctuations over time are observed in the filmmaking industry and broadcasting, sound recording and release. Cultural activity (broader interpretation) interpretation) Health Total Education Cultural activity (narrower Sector Year 2000 2389 2001 5840 2002 9208 2003 11500 2004 14108 2005 17443 2006 21707 2007 27759 2008 32746 2009 31733 2010 34142 20111 36919 Source: Plotted after the data of the Statistical Office of the Republic of Serbia (http://webrzs.stat.gov.rs) and social care  The average annual earnings in the domain of culture in the observed period are relatively higher in comparison with the total average for all the segments subject to statistical survey. Out of the total of nineteen sectors of activities in this country, the culture occupies the eleventh position according to the amount of the employees average earnings, below the sectors of health and social care and education. It is evident, however, that as of 2008, the average net earnings of employees in the cultural sector rise following the falling rate, which can be understood as an indicator of their fall in the period to come. Graph 1: Trends of average net earnings in the cultural sector in Serbia in the 200-2011 period Source: Plotted after the data of the Statistical Office of the Republic of Serbia (http://webrzs.stat.gov.rs) 1 Data for 2010 refer to the average net earning over the first six months in the year The total number of employees in the sectors which can broadly be understood as the cultural sector has been rather steady in the 2000-2011 period. Due to the simultaneous fall in the overall employment at the time, the share of the cultural sectror in the number of the employed rose from 1.7% at the beginning, to 2.2% at the end of the observed period. Table 3: Number of employees in legal entities and in the cultural sector in Serbia in the 2001-2011 period Number of employees Total number of employees in legal bodies in Serbia Year Number of employees in the cultural sector Source: Plotted after the data of the Statistical Office of the Republic of Serbia (http://webrzs.stat.gov.rs) Viewed in terms of individual fields of the cultural sector, a relatively largest number of employees (about 32% on average) are found in programme activities and broadcasting. A substantial fall in employment is recorded in the publishing industry, whereas in the other segments the number of employees remains relatively steady, with slight fluctuations over time. Graph 2: Trends in the number of employees in individual fields of the cultural sector in the 2001-2011 period According to the results of the poll on personal spendings of the households in Serbia, an average share of spendings on culture and recreation is relatively steady, on the level of about 4.8% in the 2006-2010 period. Reliable findings on the effects of macroeconomic trends upon the cultural development are obtained from the analysis of the levels and trends of respective indicators, in terms of the number of cultural institutions per individual segments of culture, the number of their visitors and users, the number of manifestations organized in them etc. A limitation in conducting a comprehensive analysis of quantitative indicators of cultural institutions in Serbia is the lack of data on the annual basis in certain segments. Due to specific characteristics, the periods in which observations are made and data are collected in different areas of culture differ. Namely, the annual statistical reports cover the activities of theatres, cinemas and broadcasting corporations in Serbia, as well as media and publishing houses. On the other hand, the data on libraries, museums, art galleries and archives are published on a three-year basis (Statistical Office of Serbia, 2010, p.416). Similarly, there is the issue of incomparability of data not only between individual segments, but also between time periods within one cultural segment. For example, the data on the number of users and readers of the library holding until 1980 refer to the real number of readers; from 1983, they refer to the number of visits for the purpose of taking out the library materials. This significantly shortens the time within which the available data can be tracked to generate adequate conclusions. (Statistical Office of Serbia, 2009, p.405). Graph 3: Number of theatres and of their visitors in Serbia2 Source: Plotted after the data of the Statistical Office of the Republic of Serbia (http://webrzs.stat.gov.rs) Source: Plotted after the data of the Statistical Office of the Republic of Serbia (http://webrzs.stat.gov.rs) 2 The data include professional, amateur and childrens theateres. As of the 2005/2006 theatre season, data for Kosovo and Metohija are missing Having in mind the above listed methodological problems, a limited number of indicators is selected to track the effects of economic trends on the development of culture in Serbia. The data available show that the number of theatres in Serbia has been relatively steady over time. The number of theatre goers, however, has in the first decade of the 21st century been at a considerably lower level in comparison with the 1950s, 1980s, and especially 1970s seasons. A dramatic fall in the number of visits is certainly one indicator of a changed cultural environment in the modern stage of the countrys development. Graph 4: Number of museums and of their visitors in Serbia3 The findings are much more unfavourable if indicators concerning the cinema activities are observed. The available data show a continual falling trend in the number of cinemas in Serbia. While in 1980 there were 518 cinemas in Serbia, in 2009 this number was reduced to only 117. Here the number of visitors over this same period has become alarming. During 2009, the cinemas in Serbia recorded 1569 vistors, which is nineteen times a smaller number compared to 1980. Graph 6: Number of users, organized exhivitions and lectures in archives Source: Plotted after the data of the Statistical Office of the Republic of Serbia (http://webrzs.stat.gov.rs) The analysis of the trends of the selected values of the indicators of the number of museums and visits in Serbia over time leads to similar conslusions as regards the real situation in the cultural sector. Namely, according to the data of 2009, the deviation in the number of museums is rather small in comparison with 1982. The number of visitors during 2009, however, is more than twice as small as at the beginning of the 1980s. Graph 5: Number of cinemas and of their visitors in Serbia4 Source: Plotted after the data of the Statistical Office of the Republic of Serbia (http://webrzs.stat.gov.rs) 3 As of 2000, data for Kosovo and Metohija are missing 4 As of 2008, data for Kosovo and Metohija are missing Source: Plotted after the data of the Statistical Office of the Republic of Serbia (http://webrzs.stat.gov.rs) In case of archives in Serbia, data show that the scope of contents they provide rises, with slight fluctuations over time. Despite this tendency, the number of their users decreases in comparison with the late 1980s and the beginning of 1990s. For example, archives in this country recorded 12622 users in 1987, while only 8184 users two decades later, i.e., in 2008. Long-term management of the cultural development of the society is one of the most complex fields in the work of the Government of Serbia, one that requires that balance be established, not so much between competition, goals and priorities as it happens in other segments of public practical policy, but between the competition of the vision of the role the culture plays in a society. This means that ideological concepts of modern cultural policies in Serbia should be based on establishing the balance between creativity, market efficiency and effectiveness and the satisfaction of social and cultural needs of the society. This also means establishing the balance between the protection and improvement of the cultural heritage, enhancing modern production and creating conditions for the development of a dynamic and varied cultural life on the entire territory of the country. Hence conducting the cultural policy in Serbia, as in any other modern, democratic state founded on the peoples will, requires both visionary skills and the knowledge of the strategies and tools by which visions can be made concrete and realized to meet the needs of the society as a whole, and also the needs of specific social groups (\ukić, 2010, pp. 401-402). The fact is that the negative effects of the global economic crisis in the developed European countries resulted in an increasing number of people who believe that the entire cultural sector should be left to the market type of financing. Serbia, which is, according to the macroeconomic indicators, on a considerable lower level of development, should also search for sources of financing culture, alternative to the public system of financing in this sector. The state should stimulate entrepreneurship in culture by favourable loans and tax reliefs in order that budget should be relieved from expenditures for culture in those segments that can then be left to entrepreneurs, who will in turn start the activities on a commercial basis and use their own funds to finance their development. This especially applies to the music and video-production companies, ceramics studios, festival organization agencies, galleries, bookshops, ballet and acting schools, etc. There are, however, such segments of culture as museums or theatres that cannot be exclusively left to the market. These segments are of importance for our national identity and the state has to pay more attention to them and find ways to increase the funds to finance their activities in order that their survival should not be endangered. Cultural institutions, no less than the entrepreneurs themselves, will have to undertake a number of marketing steps in order to succeed. Project promoters have to make effort to approach the prospective users of their services to achieve market success. 4. Conclusion Financing cultural institutions becomes an increasingly difficult task in unfavourable economic conditions, nevertheless, several measures can be identified towards relieving the problems of the lack of finances. The possible suggestions especially list: intensifying cooperation between cultural institutions, encouraging the projects of mutual marketing and sharing resources, provision of more favourable terms of credit-based financing, reducing procedural requirements in competing for funds and encouraging these institutions to find solutions through cooperation with non-profit organizations outside the cultural sector. Furthermore, the state should stimulate entrepreneurship in culture to solve the problem of the lack of budget for financing culture. Of special importance is the proactive approach of cultural institutions themselves, in both the short-term and the long-term time horizons. It entails projections of budgets and prospective scenarios lasting for several years, strategic decision-making on priorities when using limited funds, but also a continual informing the government bodies, the employees and all the stakeholders of the organization on the coming challenges and alternatives in making choices. Finally, it must always be kept in mind that economic trends are not the only determinant of modern developments in culture. In addition to the change in the pattern of financing culture from public and private sources, globally viewed, evident are the demographic, technological changes, as well as changes in the manner in which people spend their leisure time. In order to survive in the conditions induced by all the above listed factors, cultural institutions themselves are forced to change and adjust the method in which they work. (Helicon, 2009b, p.3) REFERENCES Š1Ë \ukić, V. (2010) Država i Kultura, Čigoja štam pa, Beograd, pp. 401-402. Š2Ë Einarsson, A. (2008) The economic impact of pub lic cultural expenditures on creative industries under increasing globalization, Bifröst Journal of Social Science, No. 2, pp. 27-46.) Š3Ë Galloway S. (2000) Public Spending on the Arts within the UK, Centre for Cultural Policy Research, Glasgow (downloaded 08.08.2011. from: http://www.britishtheatreguide.info/news/CCPR%2 0Arts%20Spending%20Briefing.pdf) Š4Ë Granato, J., Inglehart, R., Leblang, D. (1996) The Effect of Cultural Values on Economic Development: Theory, Hypotheses and some Empirical Tests, American Journal of Political Science, Vol. 40, No.3, pp. 607-631. Š5Ë Haydon, B. 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Š21Ë Zakon o budžetu Republike Srbije u 2011. godini, Sl. glasnik RS, no 20/2011 Š22Ë Zakon o izmenama i dopunama Zakona o budžetu Republike Srbije za 2010. godinu, Sl. glasnik RS, broj 91/2010 Š23Ë Zavod za proučavanje kulturnog razvitka RS (2009) Kulturne politike gradova Srbije: Kulturni resursi gradova uporedni prikaz, Beograd Š15Ë Republički zavod za statistiku RS (2009) Statistički godišnjak Srbije 2009, Beograd Š24Ë http://webrzs.stat.gov.rs Š25Ë http:// www.imo.hr 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. 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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 Management Journal for Theory and Practice Management 2012/62 Vesna Milićević1, Vladimir Lovrić2, Aleksandar Marković3 1, 3 University of Belgrade, Faculty of Organizational Sciences, 2 Vomit Group Challenges of Contemporary Chinese Business and Management¹ UDC: 005.336.1(510) DOI: 10.7595/management.fon.2012.0006 The work is an attempt to analyse certain specific features of modern Chinese business and management. It starts with the impact of culture upon Chinese management, especially upon the affirmation of the strategic approach. The focus is on the dynamics, opportunities and challenges of the modern Chinese business doing in the context of extraordinarily high macroeconomic indicators and evident development prospects on a global level. A special section of the work is devoted to the digitalization and the development of a competitive e-business. Key words: Chinese business, culture, strategic approach, Chinese management, e-business. 1. Introduction A dramatic economic success of the People Republic of China in recent years, long manifested in the worlds highest growth rate of the gross domestic product (GDP) of 9%, highlighted the success of the Chinese business and management. Research into the specific features of Chinese company management today is an especially interesting area of study within comparative management. China covers an area of 9598km2 and has a population of over one billion 1320 million inhabitants (according to the data of 2008) [1]. It sprawls from Siberia to the Equator and from the Pacific Ocean to the centre of the Euro-Asian continent. The cities with the largest population (according to the data of 2007) are the following: Shanghai 12 million, Beijing 9.3 million, Chongquing 8.8 million, Guangzhou (Canton) 6.9 million, Chengdu 6 million and Tianjin 5.8 million [1]. The gross domestic product amounted to CNY 30,067 billion in 2008. Important social changes during the 20th century must certainly be taken into account. A large and a fast growing Chinese market offers numerous business opportunities and its role in the international business in the 21st century is increasingly important. 2. Cultural impacts upon Chinese management The Chinese civilization is the oldest civilization in the world that lasted continually. The impact of culture upon the Chinese management is very important especially because a specific mixture of the traditional and the new in this culture has significant implications in managerial decision making. Therefore it is worth pointing out the relevant regional differences in the fields of economy, culture and management that are largely characteristic of Beijing as a capital city and a political centre, Shanghai as a commercial centre, Guangzhou which lies in the south, not far from Hong Kong, characterised by an important economic expansion, as well as the cities in Western China, such as Chongquing and Chengdu. In business circles, China is today often marked as a workshop of the world, where human resources play a specially significant role. An adequate illustration in this context is the thought of Chen Pu (12th century): If a work is well planned, you will certainly succeed. This is a general rule. It rarely happens that a man who works diligently gets nothing. And there is no harm in doing the best you can [2]. It has to be remembered, 1 The paper brings the results of the authors research within the project no. 179081, financed by the Ministry of Education and Science of the Republic of Serbia. Management Journal for Theory and Practice Management 2012/62 however, that the Chinese civilization has always been characterised by a spirit of invention and a technical superiority in certain domains. The Chinese invented the weaving and spinning techniques; they were successful in the production of silk, famous for their bronze, smelt iron and steel, for the exports of hardware products into South Eastern Asia; the history of Chinese ceramics is one of the most famous in the world, and the production of china reaches its climax in the 12th century. Until the 19th century China was the worlds leading exporter of then luxurious commodities: silk, ceramics, china, tea, products from laquer, luxury furniture; it had accomplished engineers, artists and craftsmen [3]. It is necessary that the characteristics of the Chinese culture important from the management aspect be thoroughly studied. The impact of culture upon the Chinese management is of special importance, especially that of philosophy. The economic thought of the Chinese philosophers reveals a difference between the notions of the root and the branch. The root meant arable farming, whereas the branch denoted trade in the sense that farming must always precede the exchange of goods [3]. Traditionally present in the Chinese culture are the Confucius (551BC 479 BC) ideals . His recommendations concerning the rule of a stable state and a harmonious society, given about two and a half thousand years ago are still vital today and influence the life of the nation. This is especially so with his ideal concerning the importance of the family. As regards the virtues of an individual, Confucius pointed out the philantrophy, zen, that includes love for others, i.e., the sympathy for the people around the man, and the righteousness, yi, that includes what should be done in a certain situation out of moral motives [4]. He considered the life worthy of man a continual and never finished process of learning and education. Confucius highlights five general duties, obligations that are essentially the pillars of all other social relations, as well as three moral qualities through which the duties are carried out. The five duties are the following: those between the ruler and the subjects, those between the father and the son, those between the husband and the wife, those between the elder and the younger brother and duties among friends, while the three generally recognized qualities are wisdom, sympathy and courage [5]. This is the background from which the hierarchy of rights and duties and the respect for authority stemmed. Also crucial are the socialization which includes the behaviour in accordance with ones role in the society and the collectivism, characterised by the participation in intensive social interactions. This is well illustrated by an old Chinese saying: Man should not look at his picture in the water, but in the eyes of other people [6]. Daoism (or taoism) in philosophy is based on the notion of dao (tao) that literally means the way and is important from the aspect of the impact of the Chinese culture upon management, and this goes especially for daoist dialectics. Of special importance for the understanding of the daoist thought is the Way Power Book / Dao De Jing written by Lao-Tze in the 6th century BC, where dao is understood as an all-comprehensive first principle - Dao gives birth to all things and de (power) nurses all things [7]. The duality of all things under heaven is stressed, expressed in the following thought: All things hide (in themselves) yin, cherish yang. Yin refers to shadowed, passive, whereas yang means light, active. Yin and yang, only together, make a whole. The binary unity of yin and yang is considered to be characteristic of all the aspects of Chinese life. A well known symbol ☯ shows their simultaneous opposition and complementarity. The process of creation of all phenomena is considered to be cyclic, as an infinite creation and disappearance, in which everything changes into its opposite after it has been fully completed, and this also refers to the economic cycles in the modern period. The implications of this philosophy are also valid in case of business negotiations: even if they do not agree, both negotiatiors can be considered basically right [8]. Generally, the Chinese civilization is characterised by a parallel existence of a plethora of local forms, however, by a certain hierarhical order, too, the order that allows for different cultural types to be brought together and reconciled and for stability to be achieved. From the aspect of management, too, the notion of ritual as a correct and proper behaviour is also important. Also characteristic is a tendency to achieve a social harmony as well as harmony with nature. 3. Specific features of Chinese management Chinese management is characterised by the importance ascribed to strategy creation and implementation. This is related to a classic work, The Art of War, written by Sun Tzu over two and a half years ago [9]. In studying the Asian management systems, Sun Tzus strategic thought is especially brought into relation with business competitiveness. Also characteristic is the Chinese expression Shang Chang Ru Zhang Chang, translated as Market is a battlefield [10]. In modern Chinese management, Sun Tzus approach Management Journal for Theory and Practice Management 2012/62 is related to business negotiations. In case of foreign managers, only well conducted long-term relations with Chinese partners will result in creative, mutually beneficial business negotiations. The initial negotiations are oftern the zero sum (Linghe Tanpan) negotiations. Only after mutual trust has been established can negotiations on important further commercial relations begin [8]. From the aspect of success in business doing it is very important that foreing managers should be familiar with the well established interpersonal relations characteristic of China. Guanxi (personal relations) means building relationships outside the family, ones based on establishing trust, and this is specific because it is limited to partners connected through personal obligations, doing favours, developing friendships, helping and supporting each other. This essentially results into a positioning into the social newtwork on the basis of a specific long-term reciprocity. Reference to ones guanxi during business negotiations is of paramount importance. As regards personal behaviour, an individual has to have a face (lian cheek), which is often linked to reputation (mianzi) which can be acquired. Mianzi defines the position of an individual in his/her social network and is the most important measure of social value. Especially important in business is interpersonal harmony (Renji Hexie) [8]. It is well illustrated by a Chinese saying A man without a smile should not set up a shop. Generally speaking, harmony between business partners and patience are essential. Politeness and positive feelings are also desirable. The Chinese avoid saying No; instead of a direct denial, they will change the topic, stop talking, ask another question or give an ambiguous answer with subtle negative associations, e.g., it seems not to be bad. Also important are the changes in intonation, in facial expression and the body language. Expressing negative emotions is not desirable in business communications. From an economic aspect, it is important to stress the Chinese passion for saving (Jiejian) [8]. The economy of the Peoples Republic of China in the recent period has been characterised by high savings rates, which can partly be explained by the earlier periods of economic instability. This is in turn reflected in the role that pricing has in business negotiations. In addition to negotiating the issues related to the quantities of goods to be delivered, for the products themselves, the post-sales service, terms of payment, warranties, the central point of disagreement can well be the sales price. An important issue is that of the relationship between tradition and modernity in the Chinese management today. The impact of the traditional Chinese culture and the value system is by all means very strong and a large number of traditional values survive. There is a unique blend reflected through a coexistence of certain collectivistic characteristics and new, individualist ones, typical of the industrialization process and of what the modern Chinese management terms a notion of social modernization [11]. It is important in this context to highlight diversity as a vital specific feature of management in modern China. We have to bear in mind that certain regions in China each cover an area larger than some countries in Europe or in the world. Certain regions may differ in history, dialects, economic resources and development. North Eastern China was long the industrial centre of the old planned economy, with a large number of of state-owned firms and a developed petroleum and steel industries, and three of its regions: Liaoning, Jilin and Heilongjiang are known as dongbei (north-east) the industrially and technologically developed region of the country. Today, North Eastern China is still very important from the aspect of economic development. Important also is its economic connection with the neighbouring countries Liaoning is known for its close economic links with Japan, Jilin is closely related to Korea, and Heilongjiang has relations with Russia [11]. The diversity concerning the regions can also be viewed through the orientation of managers in the coastal cities, such as Shanghai and Guangzhou. These are more individualistic in their openness to change and in their tendency to satisfy their personal interests in comparison with the managers in more distant and less developed cities such as Chengdu and Lanzhou. Besides, there is a growing generation gap to be concerned with. Thus young managers who spent a larger part of their professional lives in the period of reforms are now more individualistic in their approach in the economy that promotes the forces of market and the society where it is desirable to be rich [8]. 4. Modern Chinese business dynamics The Peoples Republic of China was founded in 1949 and can boast of a very turbulent social and economic history. Characteristic of China is that it started to open to the world in 1970s. The modernization programme of China was adopted under the leadership of Deng Xiaoping [2]. The reform process followed his vision of socialist market economy. The Government of the PR China adopted and pursued the open door policy and used subsidies to encourage foreign investments. A gradual opening of China to international trade Management Journal for Theory and Practice Management 2012/62 began in 1978. Special economic zones were formed on the coast in which favourable conditions were created for foreign entrepreneurs. Economy was characterised by a fast development of industry and agriculture. In the period following 1978, up to the present day, China witnessed an exponential growth of foreign trade, a large inflow of foreign direct investments, a restructuring of industry with a substantial inflow of foreign capital, technology and professional managerial knowledge. In 1997, China recovered Hong Kong, which retained a special administrative status, and in 1999 it regained sovereignty over the Portugese colony Macao. Especially characteristic of China is its abundance in resources, technological advances and strikingly high rates of continual economic growth. Today one can talk of a specific and successful links between tradition and modernization the values of traditional Chinese civilization and modern development of industry and economy in general, with a strong affirmation of management. Also characteristic is the synthesis of the Chinese and the Western, with an orientation towards specialist knowledge, efficiency and new possibilities for mass communication. The Chinese economic system characterised by dualism resulted in an economic boom. Especially important was the admission of China into the World Trade Organization in 2001. The analysis has shown that, traditionally, the state firms used to grant a large number of social facilities to their employees, e.g., provision of housing (flats), health care and pensions [11]. In the conditions of command economy the workers were, the same as all the other inputs, allocated to companies by the state. Work units danwei were organized in which the job security was guaranteed until the retirement day, with the least mobility of labour and with a responsibility (of the state) for a range of services, such as education for the employees children, health care services, recreation services. Companies of this type suffered too much financial burden and did not encourage efficiency. The reforms undertaken in the late 1970s increased the autonomy in the domain of state-run company management. Thus in 1980s the companies became accountable for their profits or losses, and were authorised to retain and allocate part of their profits within the state plan. The retained profit could be invested into technological innovations, into the development of new products or it could be used to pay bonuses to the employees. In the mid-1980s, a mixed system of planned and market economy, with changes in the sales price system was introduced [11]. Attention was focused upon the reforms of company management, with special emphasis on the role of managers and the responsibilities for managerial work [10]. Chinese state-run companies also started to establish an autonomous accounting practice. Investment funds were no longer formed by the state only, they were also generated by the firms themselves. Managers took care of a rational use of funds. The cost management was also promoted. Different management techniques came to be implemented. In the third phase of the reform a diversification of forms of ownership was allowed and a system of corporate management was introduced, based on that of developed market economies [11]. This meant the implementation of such a model where shareholders control the managers through transparent market procedures. A large number of state-owned firms were then transformed into joint-stock companies, with the state often remaining a majority owner. The restructuring process allowed for forming a large number of groups of state-run companies with an integrated product and marketing management as well as with a tendency towards an optimum exploitation of production factors. One good example is the automobile manufacturing industry. In addition, state firms were enccouraged to enter into joint ventures and cooperation arrangements with foreign companies. In case of mergers and acquisitions the economy of scope is expected to prevail. Generally, the reform of economy system meant the development of a market economy system, reforms in the domain of investments, taxation, price system, labour force. The priority of the reform was the state-run industrial sector and the goal was to improve the competitiveness of state-run companies. Corporate management also suffered certain changes. The separation of ownership from management and assigning a more important role to managers was very important too. The tendency was towards forming company groups (jituan) as a type of business networking, and not only in the car manufacturing industry, but also in the fields of electronics and pharmaceutical industry. The process of reforms in the state-run companies is very complex. Simultaneously with the reforms the development of privately-owned companies and business ventures financed by foreign investors was fostered. The recent period witnessed an increasing presence of the competition from the economies characterised by a low cost of labour force, such as Vietnam and Indonesia. This is one reason of promoting the high technology products. Management Journal for Theory and Practice Management 2012/62 Although the share of the state sector in the gross domestic product falls from the beginning of economic reforms in the late 1970s, its role is still very important. It differs by individual economic sectors. Thus an increase in competition is evident in the textile industry and electronics, whereas state-run companies are dominant in the electric energy supply, in the supply of coal, oil, steel, chemicals as well as in certain services, primarily in some segments of transport and in telecommunications [11]. Generally viewed, reforms resulted in the conditions in which managers are accountable for the provision of inputs and for the realization of outputs, with the freely formed prices with two exceptions [11]. Important from the perspective of management is the development of a market system, which brought forth a considerable expansion of the consumer market as well as the development of other types of market production material market, financial market, labour market, technology market, real property market. The transition of state-run companies to a market economy model thus changes their operations environment to a considerable extent [10]. This means that managerial decision making in a majority of state-run companies is about making autonomous decisions as regards the product type and the scope of production. Also highlighted is the contribution of the market mechanism and individual initiatives in achieving economic growth. Private firms in China are often part of a broader conglomerate where their inter-relations are influenced by family ties rather than defined by law. Generally, business relations tend to be based on trust rather than on legal mechanisms. The business world in China obviously does not include only two separate sectors private and state sectors; there also are hybrid forms [11]. A boom in service provision industry is also perceived. Chinese family business has become a dominant form of oversea business organizations and one of the major forms of Asian type of business doing in general [10]. As these companies often record successful growth, largely supported by the influence of the Chinese business culture upon competitiveness, they are faced by the need to hire professional managers. Characteristic of Chinese family business is that power and authority are closely connected to ownership; the business is characterised by autocratic leadership and a personalistic management style, as well as by paternalism, hierarchy, acceptance of reciprocal responsibilities and obligations. The organization of such businesses is often simple and informal. A large number of these businesses are small, concentrated upon production, sales or service provision. The analysis of the private sector in China in the recent period has revealed that it varies in size, and also includes firms funded and managed by individual entrepreneurs, however, partnerships are also possible, as well as joint-stock companies and jituan as conglomerates in industries connected with high technologies and developed human capital. New organizational forms also emerge; they are, as pointed out above, hybrid in character, such as a spin-off in high technologies, most often as results of break-offs, that is, the development of new commercial ventures of institutes or universities. Consequences of fast economic growth can also be seen in the area of environmental protection and social inequalities. The tendency to reduce the social and economic inequalities and thus achieve social harmony is evident. 5. Digitalization and e-business development Digitalization has brought fundamental changes into the Chinese way of living and business doing. A comparison with other countries users of the Internet shows that the Chinese use the Internet for entertainment and communication to a much larger extent than other nations. They have also transferred a large amount of their commercial activities to the Internet, including a search for and purchase of products, but also the service consumption. The Chinese online growth is practically related to two markets one includes young people from urban anglomerates (educated, apply new technologies, eager to advance), while the other is one of the rural population [12]. The rural population of users comprises mainly young teenagers whose number constantly increases. People in rural areas are poorer, so the young access the Internet through Internet cafés or mobile phones. The same companies meet the online needs of both the urban and rural users. In recent years, companies leaders in the digital service sector in China are identified, such as Tencent, that also established the first Chinese institute for research into the Internet, and Alibaba group, whose alibaba.com sector is a famous company leading in the B2B e-trade for small business [13] [14]. Taobao is part of the Alibaba group and the most important company in the Chinese e-trade milieu [15]. The Management Journal for Theory and Practice Management 2012/62 taobao.com site offers 800 million products, 40,000 of which sell in a minute time [16]. Highly illustrative is the fact that in 2009 Taobao was dominant in the Chinese online shopping, with a market share of 76.5% of all online shopping sites [17]. The business success and higher competitiveness are only fostered by the fact that one can find here items at a price 25% lower than prices offered by other sales channnels, as well as by the network effects in attracting new offers and by a great consumer trust. Also important are highly developed customer services within the factors of non-price competition which are primarily evident in the biggest worlds call centre, as well as a tendency towards improving the sophistication of consumer experience with an emphasis on interactivity. A successful business of online giants on the Chinese market was further enhanced by a rapid rise in the number of users, especially in terms of e-commerce, social networking sites, online advertizing and mobile Internet. The companies that plan to enter this growing market will have to understand the needs of both urban and rural population. There were 384 million Internet users in China in 2009, a number much higher tha in the USA and Japan together. This number is anticipated to reach 650 million by 2015. The Internet penetration is expected to rise from the present 29% to nearly 50% by 2015. The online content and aggregation market in the Peoples Republic of China will grow from US$ 14 billion in 2008 to US$ 40 billion in 2012. Digital devices and the Internet are becoming inceasingly important to the digital consumers in China. The fact is that the users in China spent on the Internet more than 1 billion hours daily in 2009, and a rise is predicted to amount to over 2 billion hours daily by 2015. About 8% of Chinese population shopped online in 2009; this number is anticipated to grow to 19% by the end of 2012. The total number of the social networking site users reached 130 million in 2009 [12]. Conslusion A paramount importance of the Peoples Republic of China from the point of view of global business cannot but be recognized. The growth rate of the gross domestic product (GDP) of China of more than 9% per annum over a period of thirty years has been the highest in the world. China is perceived as the worlds largest prospective market. In 2010, China was the largest worlds exporter of goods. This highlights the fact that, from the aspect of the future business, companies will have to get to know the Chinese market, the Chinese culture and the Chinese customers in order that they should do business successfully and be competitive on both the Chinese and the global markets. The characteristics of the Chinese economy are specific in the global sense; it is a complex and dynamic economy. The importance of the reformed public sector is typical in view of industrial restructuring, as is the revitalization of companies in private ownership since 1980s and their fast growth that largely contributed to China being regarded as the workshop of the world. Also present are certain hybrid forms of business as well as the orientation towards a high technology sector. An important role here is that of the input of foreign capital and technology. Especially important is the development of the Chinese management and the implementation of modern management methods and techniques, the knowledge of the world market, the implementation of information and communication technologies, a more important role assigned to logistics and branding. Special attention is paid to corporate social responsibility in the context of sustainable development. Generally, the changes in the managerial practice and in the domain of corporate management have been important in improving the performance and competitiveness of companies, and in the long run, in contributing to an impressive economic development in global proportions. Modern Chinese business in the production and service provision fields is characterised by a diversity among individual regions, the age groups of managers and the very value system, where a specific mixture of the old and the new is especially evident. Relevant here are new forms of companies and new approaches to management. Digitailzation of business and the use of the Internet provided an opportunity to once secluded local manufacturers in China to be contacted and engaged directly by the buyers of their products and the users of their services worldwide. Doing business with China has become highly prestigeous, and understanding of the business culture, the specific features of Chinese management and new opportunities in business have become a necesity for companies all over the world. This also implies the need of Serbian companies to reconsider the opportunities and challenges related to a broad domain of modern Chinese business and management. Management Journal for Theory and Practice Management 2012/62 REFERENCE [1] OECD Economic Surveys: China 2010, OECD [2] Maljavin V.V., Kina istorija, kultura, religija, NNK Internacional, Beograd, 2008. [3] Žerne Ž., Kineski svet, Clio, Beograd, 2007. [4] Fung Ju-Lan, Istorija kineske filozofije, Nolit, Beograd, 1971. [5] Laoce, Čuangce, Konfucije, Izabrani spisi, izbor, prevod, predgovor i beleške Svetozar Brkić, Prosveta, Beograd, 2006. [6] Andrić D., Svet u kapi rose antologija klasične kineske poezije, Rad, Beograd, 1991. [7] Lao C, Knjiga o Daou i Deu, preveo sa starokineskog Radoslav Pušić, PlatΩ, Beograd, 2003. [8] Lam N. M., Graham J.L., China Now, Doing Business in the Worlds Most Dynamic Market, McGraw-Hill, New York, 2007 [9] Sun Cu, Umeće ratovanja, preveo i priredio Mirko Bižić, Mono i Manjana, Beograd, 2009. [10] Chen M., Asian Management Systems, Chinese, Japanese and Korean Styles of Business, Thomson, London, 2004 [11] Tang J., Ward A., The Changing Face of Chinese Management, Routledge, London and New York, 2003 [12] Michael C.D.; Zhou Y., Chinas Digital Generations 2.0 - Digital Media and Commerce Go Mainstream, May 2010., bcg.com [13] http://www.tencent.com/en-us/,vreme posete: mart 2012. [14] http://news.alibaba.com/specials/aboutalibaba/aligroup/index.html, vreme posete: mart 2012. [15] http://www.taobao.com, vreme posete: februar 2012. [16] Walters J., Kuo Y., Jap W., Hsu H., The Worlds Next E-Commerce Superpower, Navigating Chinas Unique Online-Shopping Ecosystem, The Boston Consulting Group, November 2011, bcg.com [17] http://www.resonancechina.com/2010/12/06/where-do-most-china-citizens-have-their-online-purchase/, vreme posete: decembar 2011. Receieved: 02. 2012. Accepted: 03. 2012. About the Author Vesna Milićević Univezity of Belgrade, Fakulty of Organizational Sciences Dr Vesna Milićević is full professor at the Faculty of Organizational Sciences, University of Belgrade where she teaches at the courses in the area of economics, management and international business. She is the author or co-author of a number of monographs, textbooks and articles in national and international scientific and professional journals. Vesna is an elected member of the Scientific Society of Economists of Serbia. She participated in strategic scientific & research projects as well as in projects and trainings for managers in the business sector. Vladimir Lovrić Vomit Group Vladimir Lovrić completed his graduate studies in economics at the universities at Novi Sad and in Belgrade, as well as master studies in the field of management at the Faculty of Organizational sciences in Belgrade. Since 2002 he is engaged in foreign trade and consulting expert for the companies from the Peoples Republic of China and the south-east Asian countries where he visited periodically for more than three years. Aleksandar Marković University of Belgrade, Faculty of Organizational Sciences e-mail: aleksandar.markovic@fon.bg.ac.rs Aleksandar Marković is a Full Professor at the Faculty of Organizational Sciences, University of Belgrade, Serbia, where he got his MSc and PhD degrees in the field of Computer Simulation. The areas of his research include:e-business management, computer simulation, business simulation, business dynamics. He is editor in chief of the Management journal. Management Journal for Theory and Practice Management 2012/62 Milena Popović, Marija Kuzmanović, Bisera Andrić Gušavac University of Belgrade, Faculty of Organizational Sciences The Agency Dilemma: Information Asymmetry in the Principal-Agent Problem UDC: 005.336.5:005.57 ; 659.23 ; 519.83:659.21 DOI: 10.7595/management.fon.2011.0005 By possessing incomplete and imperfect information, market participants do not achieve the optimal allocation of resources that would be possible in the case of possessing complete information. On the other hand, timely and relevant information represents a product for which the appropriate market price must be paid. In modern corporations, the two sides engaged in a contract may have different goals and have different levels of information. This problem is called the principal-agent problem. Agents sometimes have personal goals that do not coincide with the goals of the principal, thus the principal must achieve its own, but also the needs of agents. One way is to motivate the agent using rewards, prohibitions and penalties. In this case, the qualitative needs assessment and evaluation of costs results in greater efficiency and faster problem solving. The paper points out the importance of economics of information for the operation and the result of market processes. To model market relations in a situation where two parties are asymmetrically informed, the methodology of game theory is used. The problem of principal-agent is modelled as the Bayesian game, where the solution is obtained using the concept of the Bayes-Nash equilibrium. Keywords: principal-agent problem, asymmetric information, market signalling, market screening, game theory, Bayesian game, Bayes-Nash equilibrium. 1. Introduction Economic science has been for decades developing concepts that relied, among other things, on the complete and uniform information of market participants. The starting point was a rather unrealistic assumption that all market participants have all relevant and necessary information about the variables that define their field of choice. Under such conditions, the market equilibrium and the optimal allocation of available resources is reached very simply. However, over time, it was concluded that such a restrictive assumption does not describe the real problem with sufficient precision, as well as that a better analysis requires different models to be developed [8]. Therefore, the game theory, as an economic science, has found its special application in the analysis of complex market situation characterized by imperfect and incomplete information. Information asymmetry implies that one party in the transaction has all the relevant information, while the other does not. It applies to situations where checking the fulfillment of contract could not be performed in the contractual relationship. In order to overcome the problems resulting from information asymmetry, it is first necessary to define the causes of their emergence. As leading causes, problems of moral hazard and adverse selection are highlighted. The problem of adverse selection occurs when one party acts opportunistically before contract. Akerlof [1] proposed, by analyzing the functioning of used cars market, a model that provides demonstration of a classic problem of adverse selection. On the other hand, moral hazard occurs when, after signing the contract, parties involved act opportunistically. For example, after signing an insurance contract, there is a tendency for company frauds. Therefore, in such cases it is not desirable to run a uniform insurance policy [9]. The literature identifies two possible ways to overcome problems of asymmetric information. The first is based on the assumption that it is necessary to establish such relationships that provide relevant incentives for the side which is in a possession of a private information, to inform the other side openly. This concept Management Journal for Theory and Practice Management 2012/62 is known as market signaling [10]. Another solution is based on the fact that the party which is less informed must take the initiative and try to obtain the lacking information, the so-called market screening [11]. One of the theories that follows the development of corporate management, and assumes the existence of asymmetric information is the agency theory. This theory, as well as conflicts between managers and owners, refers to the potential difficulties that arise when two sides engaged in a contract have different goals, and different levels of information [2, 5]. In this paper we focus on the problem of principal-agent as a special case of agency theory and problems of information asymmetry. 2. Agency theory and the problem of conflict of interests The Agency theory views the company as a set of agreements between different parties. In modern corporations, owners or shareholders, that is principals, are hiring managers i.e. agents, and assigning them the task of managing the daily operations of the company. Managers, paid by salary, represent the interests of the principal in order to maximize the value of the company. On the other hand, the board elected by the owners regularly meets with managers to oversee their activities and try to ensure they truly act in the best interest of the principal. Figure 1: Basic elements of agency theory It is clear that the market relations between principals and agents are very complex. The existence of information asymmetry is the source of the so-called agency conflicts, and many other features, including moral hazard and adverse selection. The basic elements of the agency theory are shown in Figure 1. 2.1. Agency conflicts Relations, and thus conflicts being considered by the agency theory, are between: (1) owners and managers and (2) owners and creditors. Conflicts between managers and owners Managers in some cases may have personal goals that do not coincide with the goals of owners, ie. maximizing the value of the company. The Agency theory argues that managers always seek to maximize their own benefit at the expense of the owner. If the owner is at the same time the manager, then he takes actions that clearly lead to maximization of his wealth. The owner-manager attributes the value of the company to its own wealth, in exchange for the opportunity things in life, such as leisure time and part-time job. If the owner-manager decides to sell some of Management Journal for Theory and Practice Management 2012/62 its property to investors, an agency problem arises. Then, for example, a manager-owner could prefer free time and a secure life as opposed to hard work and further increasing the value of the company, because now the value does not belong entirely to him alone. In addition, the owner-manager could incur higher costs, because these are now paid by a number of parties. Managers should be encouraged to work in the interest of the owner, by various awards, prohibitions and penalties. These methods are effective only when the owners can monitor the work of managers. Moral hazard occurs when managers risk to act in self-interest, because they know that owners can not monitor them constantly. To reduce moral hazard, owners need to look at agency cost. There are three basic types of agency costs: costs of monitoring managerial activities, and audits; costs of restructuring the organization, elimination of certain units or adding new ones to reduce the un desirable actions of managers; opportunity cost that arises when the owner is required to decide on some important matters, which lim its managers in their effects, and therefore in maximization of the owners value. It is necessary to choose the optimum level of these costs in order to achieve the maximization of company value. The conflicts between creditors and owners Creditors, as creditors of the company, have a priority in payment of interest and priority of payment in case of deterioration of the company. Creditors lend their free resources (money or capital) in relation to the risk of the companys business and economics in general, hoping they assessed situation well, and they will profit. Giving creditors authority over managers, owners are running the contrary policy. They generally accept those projects that carry a higher risk over projects that are accepted by creditors when they entered the business. If these projects can make a profit, it goes only to owners, because the creditors receive a fixed interest rate. In the case when these projects are unsuccessful, all the involved share the loss. 2.2. Moral hazard and adverse selection The emergence of the term moral hazard is related to the business of English insurance companies in the seventeenth century, according to the research conducted by Dembe and Boden [3]. Initially, the term was used to describe the negative effects, or fraud and unethical behavior of the insured. In the modern sense, the definition was given by Adam Smith in his book, which was released in 1776, although not in the context of insurance companies, but in the sense that someone who does not own the company has the ability to manage such capital, not bearing the same market risk. Specifically, in situations where the consequences of any decision cause negligence and decision maker is not responsible for them, there is moral hazard. Moral hazard is a possibility that one party, if it does not comply with the terms of the contract, earns more than the amount contained in the contract. This problem occurs in almost all areas of business, or wherever there is information asymmetry. Specifically, the principal often does not know whether all parts of the contract with the agent are met, or whether the agent is properly motivated, and offered a compensation that satisfies him. Then the agent could take the moral hazard, in order to ensure himself a satisfactory value for the invested efforts. The Game theory provides space for the development of different strategies in order to connect the interests of the principal and the agent. Some of the strategies are compensation and incentive mechanisms, as well as control and monitoring [4]. The problem of moral hazard can be more closely explained in the example of insurance. The problem of insurance indicates that the probability of the insured event is less if there is no insurance. A most often described example is life insurance of spouse. If the husband insures his life with the clause that in case of his death the insurance money goes to his wife, then, if the insured amount is high enough, the wife might be tempted to facilitate the insured event i.e., the death of her husband. In this case the insurance company bears all the risk by itself. It is therefore important that such agreements are made so that the insured person bears one part of the risk. However, problems sometimes arise in the practical application of this principle. Management Journal for Theory and Practice Management 2012/62 On the other hand, the market often witnesses products and services of good and of poor quality. Due to the mechanism of adverse selection, products or services of poor quality remain, while products of good quality are not offered. Adverse selection can also be illustrated using the example of business insurance companies [9]. The insurance company, on the basis of available statistical data, can determine the expected probability of negative events which is the subject of insurance. Let it be auto insurance, and let us assume there are two categories of drivers identified based on the statistical data, careful drivers and risky drivers. What will happen if the insurance company offers insurance premium based on the average likelihood of a crash? Averages are determined based on the total sample of drivers, both careful and risky ones. Risky drivers will accept the offer because it is a rational decision for them. On the other hand, careful drivers will refuse this offer, considering it to be too expensive, knowing what type of drivers they belong to. As a result, risky drivers will dominate in the demand for insurance. The problem is that the insurance premium, which is determined based on the average, thus represents a false index. It will cause adverse selection of insurance buyers, and thus cause difficulties in the business of the insurance company. Yet, there are mechanisms which resolve or at least alleviate the problems of adverse selection and moral hazard. 3. Strategies for overcoming the problem of asymmetric information Two basic strategies for overcoming problems of asymmetric information as well as their consequences, as noted before, are market signaling and screening. Market signaling refers to a situation where the party who is better informed, takes an active role. Signaling in fact represents a two players game, one of which has a private information. The game is played in two moves, and is known as leaders followers game in the game theory [12]. In the first move, the better informed player (the leader) sends a message to the other, lessinformed player (follower). In fact, the action of the leader is a signal to the other player, that is, by chosen action, the leader sends some sort of information to the other side. In the second move the less informed player, according to the message received, adjusts its behavior, and selects an appropriate action or actions. There are numerous examples of signaling on the market: providing the guarantee, the share issue, taking loans, education level, the average rate of the studies, and the like. Signals can be good or bad, but also more or less credible. Signaling to player could be regarded as credible if there is no interest for deceiving. However, it often happens that even the most honest signals are not credible enough, thus, in order to solve the problem, a specific analysis of each problem is required. Another solution to the situation of asymmetric information is based on the active role of the side that is less informed. When one party does not have enough information to take an active role, it is a so-called market screening. Market screening implies that the less-informed party motivates the better informed one to decide, declare, disclose, or take the risk. In this way it is possible to solve the problem of adverse selection. For example, in the case of insurance companies, the solution is implemented with such a model of insurance where a whole range of different contracts is offered, and buyers of insurance, i.e. drivers, could, according to their preferences and the real situation, choose a contract that suits them best. In this way, they show (reveal), through specific agreements, their secret information or one that is unknown to the insurance company. However, in practice, the process of establishing equilibrium is usually much more complex [11]. 4. The principal-agent problem The principal-agent problem, also known as agency dilemma, occurs while separating property from the management process. The agent works on behalf of the principal and receives remuneration for his/her work, while the principal gives the powers and controls him, but not completely. Problems related to risk are related to the risk of principals, because the control is never perfect and there is a lack or delay of information, and the agent can work in his/her own interest and not in the interests of principals (Figure 2). The agent risk is the possibility of losing a job, and making long term decisions that do not have immediate positive effect. Management Journal for Theory and Practice Management 2012/62 Figure 2: The principal-agent problem An agent usually has better information than the principal, about his efforts and results, and the possibilities for expanding interests of the principal. On the other hand, the principal does not know what is the actual cost of the agents work, nor his utility function. The main difference between the principal and the agent is in that the principal is a superior party (someone who owns or controls), while the agent is the companys staff. The principal bears the risk faced by the owner (a loss of invested capital), while the agent is insulated from risk by contractual obligations of principals. Two fundamental problems that arise in agency relations indicate the possibility of divergence of goals and desires of principals and agents, so the principal is not sure whether the agent is acting in his best interest. In addition, the principal and the agent have different attitudes to risk, and therefore may prefer different actions. Thus, the principal cannot be sure that the action taken to reduce risk is correct, in order to protect his own interest. If the principal-agent problem is viewed through contract law, then two cases can be distinguished: Model of agents preferences to cost The principal owns the company, and the agent is the manager. The owner has limited information and cannot fully consider all the actions of managers. Therefore, the owner requires the achievement of a satisfactory level of profit that is determined, for example, in comparison with the profit of rival companies. The manager, relative to such determined constraint, maximizes his/her preferences towards spending on him/herself, or on the agents of the company. The problem can be seen as ex-post opportunistic behavior of managers, when he/she believes that the relation is bad for him, and that some other behavior, different from the contracted, will fulfill his/her objectives. The model with moral hazard It is the result of the ex-post opportunism of managers, only in this case the owner is not satisfied with the predetermined level of profit, but seeks to create appropriate incentives so the agents behavior would come closer to the long-term profit maximization. The system of incentives is established by contract, which is formulated by the owner, and the manager can accept or decline it. 4.1. Mathematical formulation of principal-agent problem The objective of the problem is that the principal determines a smallest but sufficient reward that will encourage an agent to work effectively. This problem may seem complicated from such a perspective, because the principal does not know the agents utility function. If he had that information, he could offer him a salary corresponding to his degree of efficiency and the problem would be solved. Thus, an efficient market equilibrium would be achieved. If we assume that the principal motivates the agent with a certain amount of fee to do some job, in the end, all that the principal knows is what actions the agent has taken, but not what the result in the case of different reward would be. It is possible to consider several approaches to solving the problem. Some of them are [2]: Bandit algorithm; Ascending gradient algorithm for the case when the distribution of awards is fixed, but unknown, Bayesian approach, if the distribution of awards is fixed, and the principal has some predictions about the distributions. Let us assume that an agent may choose one of the actions from the available set of actions šAć, where the set are made of actions a0, a1 i a2 (A=ša0, a1, a2ć). Action a0 indicates that the agent is not performing the given job; action a1 that the agent does his hob, but not efficiently, while action a2 means that the agent works efficiently. Management Journal for Theory and Practice Management 2012/62 Suppose also that each of the actions is carrying some cost of labor, wi = w(ai), i = 0,1,2, where w0 = 0. This cost can be described as a sacrifice that the agent bears to perform a certain job. Let ri = r(ai), i = 0,1,2,which is a function of wages (reward) to an agent for the job done, and which the principal defines depending on whether and how the agent really works. Therefore, r0 = r(a0) = 0. The utility of the agent depends on the salary and rewards he receives for work done, and how much he resents the action that is required of him. This aversion to executing is given by function t, and is known to the agent, but not to the principal. Assuming that the agent is a rational person, and will always choose the action that maximizes his own utility, the utility of the agent can be expressed as follows: V(t,ai,ri) = v(t,ai) + r(ai) = tw(ai) + r(ai),     (1) for i = 0,1,2, where v(t, a0) = 0, for every t. The usefulness for the principal depends on the salary, or reward he must pay to the agent, and on how much the action is important to him. Therefore, the utility function for the principal can be expressed as: U(ai, ri) = u(ai) r(ai), for i = 0,1,2,       (2) where u(ai) represents the profit the principal is achieving, depending on the selected action of the agent, where u(a0) = 0. 4.2. Ilustrative example Let us start with the problem presented with a game in an extensive form (Figure 3). The game involves three players: nature, company and worker. The company is to decide whether to hire worker (Z) or not to hire him (N). The worker may be lazy or hard working, where the worker, of course, knows what type he belongsto. The problem, however, lies in the fact that the company does not know which type of workers it is hiring at the moment when the contract is signed, or how the worker with whom a contract is signed will perform his/her work. Suppose that the game is opened by the nature, which attributes certain probabilities to each type of workers. Since this is the game with imperfect information, the company, which is next to play, must decide whether to hire the worker or not, not knowing with certainty whether he/she is hard working or lazy, but taking into account the probability assigned in the nature turn. If the company hires him/her, the worker can choose whether to work in good faith (action a2) or not (action a1). Figure 3: Decision tree for the example of principal-agent problem Suppose that a worker has a total cost or sacrifice: v(a1đlazy) = 1 if he/she is lazy and does not work in good faith; v(a1đhard working) = 2 if he/she is hard working, but does not work in good faith; v(a2đlazy) = 3 if he/she is lazy, but works in good faith; v(a1đhard working) = 1 if he/she is hard working and works in good faith. Suppose further that the salary the company gives to the worker who performs the work in good faith is r(a2) = 4, and to the worker who does not perform his/her work in good faith is r(a1) = 3. Management Journal for Theory and Practice Management 2012/62 Let us introduce the assumption that the company, if it employs the worker who performs his/her job in good faith, regardless of his/her personality type, makes a profit u(a2) = 15. But if it employs the worker who is negligent in his work, the assumption is the company will profit in the amount of u(a1) = 10. Regardless of whether the company has entered into agreement with an agent or not, it will have additional costs related to the procedure of selection t(a0) = t(a1) = t(a2) = 0,5. In problem given, the company aims to determine the optimal action that maximizes the total expected utility, for a conviction on the type of worker. On the other hand, the worker seeks to decide whether to work in good faith or not, in order to maximize his/her own expected utility, in accordance with the type of person. We should determine the optimal action of the company, as well as the expected benefits for the company and agents, provided that the estimated probability of the worker being lazy is 0.4. Table 1 provides the utility of the company (U) and the worker (V), for all possible outcomes of the game described in Figure 3, and calculated from equations (1) and (2). Table 1. Utilities of the company and worker Strategy lazy, Z, a lazy, Z, a lazy, N hard working, Z, a hard working, Z, a hard working, N U 10 3 0,5 = 6,5 15 4 0,5 = 10,5 0 0 0,5 = 0,5 10 3 0,5 = 6,5 15 4 0,5 = 10,5 0 0 0,5 = 0,5 V 3 1 =2 4 3 =1 3 2 =1 4 1 =3 The game described above is well known as the Bayes game in extensive form, and the solution can be determined by applying the concept of perfect Bayesian subgame equilibrium. Given that this is a game with imperfect information, it cannot be solved using backward induction. The solution to the game, for which benefits are given in Table 1, was obtained using the Gambit software and is shown in Figure 4. For a given probability distribution, the expected benefit to the company at equilibrium is 8.9; while for worker it is 2.6. For a company, the best strategy is to employ the worker, regardless of whether he/she is hard working or not. On the other hand, if the worker is hard working, the best strategy for him is to work in good faith, which would bring him the utility of 3. In the case the worker is lazy, choosing his best strategy, not to work in good faith, would bring him the utility of 2. Figure 4: Solution in the example of principal-agent game The question is whether the solution is changed in case of different probability distribution related to subjective beliefs about the type of the company agent. The answer could be obtained by conducting a whatif analysis, if the analysis is repeated for different probability distribution related to personality types. Management Journal for Theory and Practice Management 2012/62 As mentioned in previous chapters, the problem of asymmetric information can be partly solved. Given that the company is the less informed partly in the contract, it should apply a strategy of screening. In the present case, this strategy may be related to a system of incentives through compensation for the work performed. If the principal offers low pay (below average) for the job, only bad candidates will apply. However, the principal can overcome this problem if he lets the agent choose whether to work for a fixed pay, or by performance. On the other hand, the agent, who is the better informed party in such a situation, should use a signalling strategy. As a measure of how valuable the agent is to the company, signals could be the level of education, the choice of a more difficult to master department at Faculty, training, scholarships and more. It should be noted also that the lack of good signals can be a bad signal in itself. Conslusion The paper shows the importance of information economics to the operation and the result of market processes which are characterized by asymmetric information. To model these market conditions, we used the methodology of the game theory. Possible strategies for overcoming the problem of existence of imperfect and asymmetric information are presented, especially the strategy of signalling and screening. One of the most distinctive problems, the problem of principal-agent, found its place in the interpretation of economic and financial phenomena. In this paper, the problem is modelled as a Bayesian extensive game, where the solution is obtained by applying the concept of the Bayes-Nash equilibrium. Possible ways to overcome the problem are suggested. REFERENCE [1] Akerlof, G., The market for lemons: Quality uncertainly and the market mechanism, Quarterly Journal of Economics, 84 (1970) 488-500. [2] Conitzer, V., Garera, G., Learning algorithms for online principal-agent problems (and selling goods on line), Proceedings of the 23rd Int. Conference on Machine Learning, Pittsburgh, PA, 2006. [3] Dembe, A.E., and Boden, L.I., Moral Hazard: A Question of Morality? New Solutions: A Journal of En vironmental and Occupational Health Policy, 10(3) (2000) 257-279. [4] Dixit, A., Skeath, S., Games of Strategy, Norton, New York, 2004. [5] Eisenhardt, K., Agency theory: An assessment and review, The Academy of Management Review, 14: (1989) 57-74. [6] Lange, T., A Theory of the Firm Only a Microeconomist Could Love? A microeconomists Reply to Lu batkins Critique of Agency Theory, Journal of Management Inquiry, 14 (2005) 404-406. [7] Lipsey, R., An Introduction to positive economics. Weidenfeld and Nicolson,London, 1983. [8] Luce, D., & Raiffa, H., Games and Decisions, Dover Publivations, New York, 1957. [9] Rothschild, M., Stiglitz, M., Equilibrium in competitive insurance markets: An essey on the economic of imperfect information, Quarterly Journal of Economics, 80 (1976) 629-49. [10] Spence, A.M., Job market signalling, Quarterly Journal of Economics, 87 (1973) 355-74. [11] Stiglitz, J., Weiss, A., Sorting out the differences between screening and signalling models, In: M. Bachrach (ed.), Oxford Essays in Mathematical Economics, Oxford University Press, 1991. [12] Stojanović, B., Teorija igara - elementi i primena, Službeni glasnik, 2005. [13] Wright, P., Mukherji, A., and Kroll., M., A reexamination of agency theory assumptions: extensions and extrapolations, The Journal of Socio-Economics 30 (2001) 413-429. [14] http://www.iea.org/textbase/nppdf/free/2007/mind_the_gap.pdf Receieved: 08. 2011. Accepted: 02. 2012. Management Journal for Theory and Practice Management 2012/62 About the Author Milena Popović University of Belgrade, Faculty of Organizational Sciences e-mail: djurovicmilena86@gmail.com Milena Popović received her B.Sc. degree in Management from the Faculty of Organizational Sciences in Belgrade in 2010. Currently, she works as teaching assistant at the Faculty of Organizational Sciences at the University of Belgrade, where she lectures courses in the Operations Research field. Her research interests are related to Mathematical Modeling and Game theory. Marija Kuzmanović Univesity of Belgrade, Faculty of Organizational Sciences Marija Kuzmanovic is assistant professor in Operations Research and Game Theory at the University of Belgrade, Faculty of Organizational Sciences. She obtained PhD degree from Department of Operations Research and Statistics, Faculty of Organizational Sciences. Topics of her research include analysis and application of mathematical modeling, conjoint analysis, game theory and other quantitative methods in marketing and management. Bisera Andrić Gušavac University of Belgrade, Faculty of Organizational Sciences Bisera Andrić Gušavac is teaching assistant in Operations Research at the University of Belgrade, Faculty of Organizational Sciences. She obtained MSc degree in industrial engineering from Ecole Centrale Paris. Her research interests include analysis and optimization of industrial and logistic systems, and mathematical modeling. Management Journal for Theory and Practice Management 2012/62 Milica Kostić-Stanković1, Natalija Nedeljković2 1University of Belgrade, Faculty of Organizational Sciences, 2Belgrade Stock Exchange, Belgrade Stock Exchange Communication with Target Groups of Public UDC: 336.76 ; 659.235 DOI: 10.7595/management.fon.2012.0002 At a time when the value of individual companies on the stock exchange is not determined only by their fixed assets and historical operating results, honest and adequate communication with investors increasingly determines the success and performance of share prices in the capital market. Unlike the developed European economies, where the concept of shareholding is has been well known for several decades, the Serbian capital market still requires efforts in training both the issuers and shareholders and prospective investors. The presentation of the stock exchange to the public, and specifically, to the investment public, therefore, is an area whose improvement can merit the institution itself, single shareholder companies, and the economy as a whole. Key words: stock exchange, communication, public, target groups 1. Introduction Public relations are used to keep the organization closer to the target public and to make both the organization and its products positioned in a desirable way so that, through synchronized communication activities, sales of products and services are enhanced, in order to increase revenue and improve corporate image and reputation. Today, organizations recognize that high visibility and reputation of a brand cannot be achieved only through mass communication. The employees in creative departments are forced to create messages that match the diversity of communication channels, the number of communication points and a large number of individual message recipients, i.e. target groups or the public. In determining the target audience the interaction of entities and communication act has to be taken into account. In addition, the communication tools, media, communication intermediates and so on have to be borne in mind [1]. In the stock market business, where a tangible product that could be directly offered to customers does not exist, and neither does the direct competition, the role of communication with public is somewhat changed, but still keeps the main function of bringing an institution closer to its customers and partners and building good relationships with the target public with the aim of achieving good business results. As the leading institutions of developed market economies stock exchanges have a task to guarantee the transparency and fair business conditions to investors and issuers, and a clear communication strategy of a stock exchange results in the necessary credibility and reputation that help spread the customers base. A significant increase in the flow rate and volume of information in stock markets bring both opportunities and risks for individual capital markets. It is therefore extremely important for the stock markets to be strategically oriented towards the threats and dangers posed by the environment and competition, and an indirect competition in the conditions of stock exchange business may be reflected in the deposits in banks, real estate market, foreign capital markets and foreign exchanges that may enter the local market or attract local issuers. Since investors are the biggest group of clients of a single stock market, whose decisions largely influence the success and the efficiency of it, it is necessary to pay special attention to the relationship between the stock market i.e. stock exchange, and investors, whose funds are a subject of the competition between the listed securities. Management Journal for Theory and Practice Management 2012/62 2. Strategy of stock exchange communication with target public When developing a public relations strategy, it is above all necessary to investigate into who the target public groups are, what are their demands (wishes, needs, problems) and how they can be satisfied, and to identify the current position of an organization and how the public and customers judge it. After evaluating the needs, an adjustment of the services of the company might be the next step if necessary, while corporate advertising can be a way of attracting potential customers who are not yet familiar with the organization. When planning a public relations strategy in the stock market business, it is necessary to investigate into different customer groups - according to their characteristics - general, demographic, organizational, locational, etc. at the beginning. After that, it is necessary to identify the needs of different segments and the way in which each of them experiences the stock market in order to identify whether clients experience the institution in a desirable way. This can be achieved by surveys - either as primary research or by analyzing data already available to the organization - such as customer feedback, queries, press clipping, etc. The choice of one or more of these activities depends primarily on the target group and the expected results. In its approach towards the public a stock exchange has to communicate the fact that it is an institution whose primary functions are the collection and evaluation of the capital and bringing new investment alternatives. Moreover, given the fact that a stock exchange is usually a single institution of a kind in an economy, it is important that in its communication to the public the stock exchange covers all topics related to the stock market, but at the same time clearly highlights what its responsibility is and what information should be sought from other sources. On the other hand, measuring public relations outcomes is a remarkable problem, especially for organizations that offer services. Given the fact that investment in the communication activities occurs at a certain point of time and that expected results can be measured only at a later time and often cannot be isolated from other factors, this is a very demanding process. Unlike manufacturing companies, where the success of public relations can be measured by sales volume in the current and previous periods, in case of an institution such as a stock exchange, this is possible only indirectly. For this purpose a statistical monitoring of the number of texts and reports of the stock market in media can be measured, the ratio of texts with positive and negative connotations, the ratio of texts and other media products in which correct information is published and those in which there were partial or erroneous interpretations of the facts, the number of the institutions engagements in public and professional meetings on a monthly basis, as well as the increase in the number of clients, the number of web site visits, the number of listed companies, the number of new investors on the local market, the number of new contacts by issuers and investors and so on [2]. Also, a stock exchange can use regular surveys to all the target groups of the public in order to evaluate its reputation, as well as to evaluate discussions with the representatives of certain target groups, in order to identify the scope for further improvements of its own services. 3. Target group of public for stock exchange When it comes to interest groups related to the stock exchange business, there are, above all, the issuers of securities - current and prospective - including shareholding and public companies, small and medium enterprises, municipal and state institutions, etc. On the other hand, there are investors and shareholders which again can be divided into subgroups - shareholders who already own shares, or citizens and organizations who have surplus funds that they could, among other possibilities, invest into securities, or professional investors, who manage their clients assets, or divided into territorial subgroups. A special target group are members of a stock exchange - the investment companies, whose daily operations are directly connected with the stock exchange and who are very often partial owners of the stock exchange, too. Then, there is a state as a legislator and a creator of the overall business environment for the stock exchange and other capital market institutions. Data vendors and users of other services of a stock exchange also form a special group of clients, that have a growing importance and finally, there are media representatives, which can significantly affect the performance of the stock exchange and overall market development [3]. Tools that are available to the Belgrade Stock Exchange, as well as other European and world capital markets, and that are used for raising awareness of professional and general public about the operations of the Management Journal for Theory and Practice Management 2012/62 Exchange include presentations, performances at fairs, publishing texts in professional publications, distribution of educational leaflets and pamphlets, managing a website and portals that contain all important information about the local capital market, the presence in social media, etc. The choice between one or more of these tools depends primarily on the desired target group and the expected results. Media engagement is an additional form of public communication activities. In cooperation with the Federation of Euro-Asian Stock Exchanges (FEAS), employees of the Belgrade Stock Exchange regularly explore possibilities of improving cooperation with the media and one of the main requirements in this area is the adjustment of complicated professional expressions and definitions to the language of journalists and the general public [4]. 3.1. Communication with the issuers When setting up a communication strategy towards shareholding companies and other institutions that seek additional funds for their business, it is important to bear in mind that these institutions (issuers) refer to a stock market solely in order to obtain additional capital. Therefore, market liquidity, a broad base of investors (local and international), the expertise of employees of an exchange and exchange members and analysts with whom a particular market cooperates are the list of important topics that are to be emphasized during communication with issuers and potential issuers of securities. The same as anyone, management of an issuing company likes to belong to the winning team, expecting that the listing of securities on a particular market will at the same time contribute to improving the reputation and performance of the company itself. It is therefore necessary to communicate effectiveness and transparency of the market to the issuers all the time. Depending on the specific characteristics of issuers (the size of the company, industrial sector, internal organization), they will choose the market that suits them a smaller or a larger market, depending on the size of the issue; markets that cover specific regions (Western Europe, the Middle East, South Eastern Europe), markets that cover specific sectors (e.g. there are stock exchanges where shares of pharmaceutical, IT or mining companies are mostly listed). Also, the choice of the market will depend on the listing requirements and costs. At a time of increased competition and globalization, companies that intend to enter a specific national market with their products and services may consider listing of their securities on the local stock exchange, too. Because of all this, it is important that an exchange communicates its advantages over the competition (other exchanges) in a manner that is clear and acceptable to the issuers of securities. In addition, it is important that companies are aware that the market has good and efficient trading infrastructure, rapid processing of orders, effective surveillance and communication with the issuers as regards reporting procedures and prospectuses updates, a modern trading system and so on. It is important to bear in mind that once the company decides to enter the stock market it wants to reach additional capital in the shortest possible time. When talking about the communication between stock exchanges and issuers, it should be borne in mind that business cooperation between these institutions does not include only the employees responsible for public relations or marketing. Employees of the listing or trading departments will often have a more intensive communication with companies representatives than their colleagues from the PR of the stock exchange, and therefore it is required that they maintain good relationships with companies. Companies whose securities are listed on the stock market must feel that employees of the stock exchange are at their service and that they have the knowledge, the resources and will to meet the companies needs, especially in situations when companies need additional education or in other unforeseen cases. Bureaucratic procedures and long, complicated processes have to be minimized. In order to meet the needs of companies in the best possible way, the stock exchanges are required to explore their expectations, needs and objections. Therefore, a two-way communication and an attitude analysis are extremely important for the success of a specific market. According to the requirements of listed companies, stock exchanges should somewhat modify their listing criteria or communication to investors and the state legislators, if necessary. A two-way communication and responding to their demands tie the company to a specific market for a longer term and thereby reduce the likelihood that at some point it will decide to list its securities on other, competitive market. Education should also be treated as a key resource the more the companies are educated, the more likely it is that they will take part in the exchange business. In the field of education it is particularly important to work on the education of companies that are not yet Management Journal for Theory and Practice Management 2012/62 listed on the stock exchange, whose engagement is frequently lacking because of the lack of knowledge of stock market operations and the benefits of listing. One of the tools that might be used in the process of communication between an exchange and issuers is the distribution of announcements about any changes in the stock exchange business that may affect the companys operation. Also, a reminder of what companies are required to submit to the stock market in the future can be a good starting point for further communication and discussion between the company and the stock exchange. The listed companies must not get the impression that contacting the stock exchange means a problem and should not contact the representatives of the stock exchange only when it comes to surveillance and compliance with listing criteria. The goal is to achieve a condition where companies independently contact the stock exchange when they have a problem or they need advice. Periodical meetings and presentations designed for companies that are candidates for listing are the basis for the initial contact between the companies - future clients and the stock market. Given the fact that the major listed companies are the most important resource of a single capital market, it is necessary for a stock exchange to emphasize those listed companies that have proved that they have the capacity to be successful in their performance on the stock market - people, markets, products, plan and commitment. 3.2. Communication with the investment community A single companys success on the capital market and in securing additional funds for its operations depends on its corporate image and reputation, quality of its goods and services and competitive position. However, at a time when capital markets are becoming increasingly internationalized and when local companies have to compete for the investments with other companies from the region or further areas, communication with investors, which aims to ensure the investors interest in shares and other securities of an individual company, gains increasing importance [2]. When the domestic capital market is not properly recognized by the investment community and an individual approach of a single company goes beyond its financial and other resources, organized approach to public investment can and should be initiated by the stock exchange, thereby providing a benefit both to individual companies and the entire market. Communication strategy of an individual market oriented towards domestic and foreign investors does not differ much from other known communication strategies - it is necessary to determine and analyze the target groups needs, determine its own position on the market and both strengths and weaknesses, and then to perform the necessary actions in order to achieve the desired goal. The biggest difference compared to the traditional campaign is that in this case it is not a product that is being sold, but the intangible values of the capital market. As any other customers, investors can be divided into those who buy the product for the first time and those who come back again to the same product i.e., shares. It is in this sense for the company, or in this case for the whole capital market, it is crucial to achieve the loyalty of investors and to ensure that purchasers of securities will not sell them immediately, but will, if possible, invest in the same securities or on the same market again in the future. It is not good for the company to have shareholders who hold shares for a short time and immediately sell them; similarly it is equally bad that there are shareholders who bought shares once and show no more interest in them. The supply and demand on the capital market, as they do in all other markets, affect the price (of securities) and those prices affect the success and stability of the company and the market [5]. The determination of a target group of investors is one of the initial activities that has to be performed. Although currently, at a global level, there is a large amount of free funds available for investments, there is even a greater competition for these available resources. In this sense, the domestic capital market is no longer the only that will collect the assets of domestic investors, but, due to the Internet and other modern means of communication, local investors will have no major problem to invest in stocks or bonds of companies that are located in the region or even farther around the globe, just in order to obtain the highest possible return on their invested funds, since investors, as well as companies, are present on the capital market only in order to increase their own funds. In order to identify and analyse the target group of investors, com Management Journal for Theory and Practice Management 2012/62 panies can use information about investors that are already present in the local market, as well as information about investors who operate in similar markets (the similarity is based on the market size, geographical location, number of companies, listed companies profile, etc.). A special target group is represented by the members of the stock exchange - the investment companies, which, either on their own or on the behalf of their clients, are the purchasers of the securities but can also have greater impact on the market through their ownership in the stock exchange, advisory role or through their associations. When identifying the target group of investors, it is also important to learn about their investment expectations, their evaluation of the current market conditions and proneness to risk taking. Different groups of investors may have different impressions about one market. It is possible that retail investors believe that companies in a particular market have adequate corporate governance, while institutional investors believe that this factor is still low on the given market [6]. The mere communication with the investment community involves various forms of reporting and trading information dissemination, such as regular periodic reports, educational brochures and publications, etc. In order to increase the involvement of investors in the local capital market a stock exchange should be concerned about their education and about their impression that its employees are at their service. Through information on the Internet, published by the stock exchange, individual investors can obtain additional information that puts them in a relatively equal position to professional investors, which is one of the basic requirements of modern capital markets. This is particularly important when, through the privatization processes, etc., individuals that, by their characteristics and financial opportunities would have never chosen to take part in the shares trading, are put in a position to do so. In addition to informational content, communication with the investment community includes direct talks with investors in order to, again through a two-way communication, get the feedback about their expectations, needs and requirements. Besides the already mentioned activities, the capital markets can also use social media in their communication with the investment community. The social media become an increasingly recognized channel of communication with investors worldwide. Certainly, the presence in social media must be consistent with the overall communication strategy and legislation, which prohibits the distribution of information through informal channels before their publication through official information channels. Communication of the Belgrade Stock Exchange to local retail investors is still largely based only on the education and, when necessary, on correcting of misinterpretations about the functioning and opportunities in the capital market. In communication with professional investors from Serbia and the region, who are usually already familiar with the main characteristics of the Serbian capital market, major attention is paid to enhancing the direct communication between companies and individual investors. The Belgrade Stock Exchange takes the position of a mediator in this case, by organizing events (roadshows and investor conferences) on which the representatives of companies present their business directly to investors. Additionally, given the still relatively low awareness of domestic stock companies about the importance and benefits of establishing long term relationships with investors, educational activities that will motivate the local companies to improve their knowledge in this field are regularly undertaken. Investors that do not operate in the Serbian capital market yet, have to be further informed about everything that determines it - regulations, trends on the Belgrade Stock Exchange, organization of the market, common economic and political circumstances, individual securities listed on the market, etc. For these purposes the Belgrade SE web site is used, along with printed materials targeting foreign public, performances at financial fairs, conferences and other professional meetings, individual discussions between the representatives of the Stock Exchange and investors, and so on. An active cooperation is established with the embassies of the Republic of Serbia abroad, as well as with other state institutions, which can also represent an initial meeting point for the investors to learn about business opportunities in Serbia. In addition, by specialized informational services, regular analyses of potential future investors in the Serbian capital market are conducted. Given the overall perception of the domestic economy, contacts are initiated mostly with investors who prefer risky investments in emerging markets. It is extremely important to point out the advantages over the competition and improve them in order to be advantageously positioned. The facts that are accentuated in the communication with investors have to be relevant to them and the advantage in terms of these factors must be apparent in the long run. In this sense, Management Journal for Theory and Practice Management 2012/62 the benefits that the Serbian capital market currently has to offer to investors are the long-term development prospect and relatively low values of the P/E and P/B ratios, which are used in the analysis of individual companies. The communication with investors must be based on honesty, timeliness and availability of information. Over-emphasizing only the positive results can lead to a sharp rise in prices of stocks and index values, but the lack of honest reviews and concealing possible problems will make investors punish the market, not just by the sudden decrease in the values of companies, but also by leaving the market for a longer term and by loss of confidence. As for other target groups of the public, a pro-active approach to investors and stock exchange members is very important, thus achieving long-term relationship and avoiding situations in which important information is first distributed through informal channels or through the media, which can give a distorted picture of the factual situation on the market. 3.3. Communication with the state and its institutions Cooperation of the exchange with regulators also belongs to the area of its public relations. On one hand, it is in the best interest of the institution to be closely connected with those who prepare laws and bylaws, so these documents could solve current practical problems of the market in the best way. At the same time, emphasizing the stock exchanges dedication to follow and work on the development of legislation significantly contributes to the perception of the stock market in the general public, given that, on the other hand, each new crisis and problem in the financial markets threaten the public trust in the effectiveness and usability of them [3]. Also, the state and its authorities (the central bank, state enterprises, municipalities) may be the issuers of securities and additional communication with them is one of the preconditions for the business expansion of each capital market. The communication with the state institutions include sharing of knowledge and experiences in order to build and maintain a more efficient capital market, which will then contribute to the overall development of the local economy. On the basis of the analysed trends on other markets, the exchange of best practices and personal experiences should ensure the drive for the adoption of new accounting and reporting standards in an economy. Lobbying and direct talks are essential tools in exchanges communication with the state bodies, thereby creating conditions that will enable successful and sustainable operation of capital markets. At the same time, the stock exchange should act as a spokesman of listed companies and members towards the state and legislators, thus providing benefits to all market participants. Moreover, cooperation is necessary not only with political parties and professionals that are in power at the moment, but also with the opposition parties, so that they also support the necessary changes in the functioning of the capital markets. 3.4. Communication with media Constant openness to the media, willingness to quickly address their questions and requests and a corrective role in case of inadequate reporting are essential activities of any stock exchange. Given the fact that inexperience of journalists or lack of information can produce negative effects on the entire market, additional activities designed for media representatives include educational trainings and detailed announcements and explanations of all the changes on the market. A common problem in communicating with the media is that journalists are more interested in reporting on scandals than on the information that is submitted by the stock exchanges - trading data, new listings, new products, etc. This is why it is important to insist on an open and honest communication with media, so that even in emergencies (trading halts, etc.), journalists have confidence in the facts that are reported to them. It is necessary that each stock exchange has a person delegated to communicate with the media, who will promptly respond to their requests and to whom they can trust, so as not to try to get the answers from unauthorized persons or from the top management, which is in case of crisis, mostly unable to devote their time to the media representatives. Certainly, the strategy of the company or some important changes in the Management Journal for Theory and Practice Management 2012/62 business, as is the case for all other companies, can be communicated to journalists exclusively by the top management. When searching for an information journalists will often ask the stock exchange employees to comment actions of other market participants the supervisory authorities, companies or investors. Therefore it is necessary to clearly indicate what kind of information are under the jurisdiction of the stock exchange and what kind of information must be looked for elsewhere. However, openness, and even to those who approach the institution with a negative bias, is one of the fundamental imperatives of media relations. Through the media, stock exchanges reach general public and further promote the local capital market, which results in increasing the level of education and thus indirectly expands the base of potential investors. Advertising in media is usually not a tool used by the stock markets. Advertisments might occasionally be published in journals intended for foreign markets where the stock exchange is not yet widely known, but on the other hand, a regular provision of trading information and of other news that may be of interest to retail investors is the core activity of the stock exchange at the local level. In addition to media presence a stock exchange can reach public by taking part in fairs and important social events, through cooperation with universities and other educational institutions, unions, etc. It is important to let the citizens know that they can directly contact the stock exchange, visit it or learn more about it through its educational activities. 3.5 Communication with data vendors Data vendors or distributors of data are institutions that combine data from various capital markets in their information packages and as such sell them to end users - analysts, investors and individuals. In this way, users of trading data do not have to contact each of the single market places in order to obtain the necessary data, but all the data can be obtained from a single source, in a uniform and comparable format. Given the fact that most of the revenues of the developed capital markets today come from the selling of information, it is clear that maintaining good relations with data vendors is one of the prerequisites of success of each stock exchange. Data market is specific due to the fact that the customers (data vendors) are usually larger market participants than the sellers (individual stock exchanges). In this regard, particularly smaller capital markets are obliged to adapt their information systems and products to the standard contracts of data vendors, and not vice versa. Within this process, employees of the stock exchange shall, together with the representatives of data vendors, constantly work on new reporting alternatives, analyses of existing information packages, new developments, etc. Requirements of data vendors may also affect the characteristics of the stock exchange trading systems and the ways in which the exchange distributes information to media and other market participants, while all changes of a stock exchange information system must be duly announced and tested with data vendors. In order to increase the availability of their data to the general public, the stock exchanges usually publish a list of data vendors with whom they cooperate on their websites and together with these institutions act at fairs, investors conferences and other professional meetings. 4. Changes in environment and communication strategy Regardless of whether influential forces in the environment are changing rapidly or slowly, the changes are significant. The changes in the environment, expressed through threats or opportunities, create uncertainty. Business success and continuity of business operations increasingly depend on the behavior of other participants in the reproduction chain, common conditions in the environment and existing relationships with the target public. The PR department of a single company can, upon its researches and analyses, predict what will happen and formulate a communication strategy with different public target groups which will be based on alignment with the changing environment. the implementation of this strategy inevitably leads to an increase in operating costs. The reasons for the increase are: the development of various communica Management Journal for Theory and Practice Management 2012/62 tion and presentation programs and their modification depending on changes in the environment, the involvement of different communication tools, special processing of data and their adjustment to the changing environment [1]. When creating a communication strategy of a stock exchange it is important to bear in mind that creating a positive image of the company in public is a long-term process. The communication of an exchange must be flexible and realistic, in line with the intense and powerful changes that are present in the capital markets, and a stock exchange has to position itself as a professional, informed and relevant financial institution. Communication also has to be proactive and synchronized towards all the target groups, since those groups can overlap sometimes. In order for any particular market to be attractive to issuers and investors it has to be efficient, that is, to have simple procedures and low transaction costs. The realization of these conditions depends on all market participants the market will depend on the efficiency and effectiveness of commercial courts in one state, taxation, law firms, quality of analysts, the efficiency of the banking system, etc. In order for investors to be satisfied with the overall picture of the marke,t employees of a stock exchange, in addition to their communication with investors, have to help listed companies to recognize the importance of investors relations and compliance with reporting procedures. If it is assessed that public have doubts in a good relationship between the stock market, the state, the local institutions and the management of listed companies, it is necessary to organize joint actions of the representatives of these institutions. The most demanding activities in the field of communication to the public occur in cases of significant (negative) changes in the economy, changes in regulations (e.g. EU accession) or trading halts. All necessary adjustments of the public and professional opinion about the stock exchange as an institution must be accompanied both by extensive engagement in the field of basic operations and in the field of communication it is not enough to change the rules, trading systems or surveillance procedures such changes have to be communicated in a way that enables target public to recognize benefits and improvements that such changes will cause. Confidence in a capital market is the only guarantee of its positive long-term perspective. Therefore, stock exchanges have to work permanently on maintaining their own credibility and the credibility of all related parties. Successful companies, long-term investors, professional analysts and objective media have to be drawn to the market and, at the same time, the individuals and/or institutions that undermine the reputation of the market have to be removed from it. Conslusion Communication, stock market, PR and marketing theories clearly stipulate what should and what should not be done in modern capital markets, which are the desirable and recommended practices, and which will, in turn, be sanctioned by the public. However, analyses show that it is not always easy to align what is expected from the individual companies and markets with their individual abilities. Therefore, perhaps the best way to present the individual products (securities) to local and foreign public are the joint activities of all stakeholders the stock exchange, state regulators, individual companies and other capital market participants, so that the combination of knowledge, funds and time resources produce a greater value than the sum of individual performances. Instruments that can be used to communicate with target groups of the public are now more numerous than ever before. However, the random use of websites, printed materials, individual meetings or e-mail messages, can not only fail to produce the anticipated results, but can ultimately endanger the market itself. Therefore, all that comes before the act of communication with target groups of the public - research of the current situation, the organization of the appropriate information system, planning of expected results and identification of indicators of success of the campaign, has to be well aligned with the desired goals. Not only external, but also internal communication are prerequisites of the realization of the ultimate goal - establishing good relations with target groups, based on mutual trust, in order to raise the level and quality of the business in an economy. Management Journal for Theory and Practice Management 2012/62 SOURCES [1] Filipović V, Kostić-Stanković M, Odnosi s javnošću, Fakultet organizacionih nauka, 2011. [2] Jasmina Živković, Marketing u finansijama i berzanskom poslovanju, Beogradska berza, 2007. [3] FIBV - Federation Internationale des Bourses de Valerus, Communication Strategy Key to Stock Exchange Success, FIBV, 1994. [4] FEAS - Federation of Euro-Asian Stock Exchanges, FEAS Round Table for Media Materials, FEAS, 2005. [5] Marcus B. W., Wallace S. L., New dimensions in investor relations: competing for capital in the 21st century, John Wiley and Sons, 1997. [6] Natalija Nedeljković, Alati za odnose sa investitorima, Beogradska berza, 2010. Receieved: 01. 2012. Accepted: 03. 2012. About the Author Milica Kostić - Stanković University of Belgrade, Faculty of Organizational Sciences e-mail: kostic.milica@fon.bg.ac.rs Milica Kostić Stanković, has been employed at the Faculty of Organizational Sciences in Belgrade since 1995. She currently works as Associate professor at the scientific field of Marketing management, public relations and multimedia communications. She is also engaged in organizing and developing the curriculum and teaching for the subject Negotiation and communication in graduate studies at the Faculty of Civil Engineering, University of Belgrade. She has worked at the University of Business Engineering and Management in Banja Luka, the Serbian Republic, Bosnia and Herzegovina, since 2005. Natalija Nedeljković Belgrade stock Exchange, Belgrade Natalija Nedeljković graduated from the Faculty of Economics in Belgrade, majoring in Marketing course and at the same educational institution she earned a Master degree, on the subject: Internet technology in the function of marketing to investors, Management and Information Systems Course 2010. Since 2002 she has been employed at the Belgrade Stock Exchange, on the jobs of marketing communication of the Stock Exchange. Since 2010 she been actively involved in evaluating the investor relations activities and engaged in the Belgrade SE Best IR Award presentings. She is the author of the publication, Tools for Investor Relations, published by the Belgrade Stock Exchange in year 2011. Management Journal for Theory and Practice Management 2012/62 Katica Radosavljević, University of Belgrade, Faculty of Economics Presentation and Suggestion for Placement of Goat-Milk Products UDC: 338.439.5:339.13.017(497.11) ; 339.13:637.1(497.11) DOI: 10.7595/management.fon.2011.0001 The basic orientation of future development in agriculture and food industry in Serbia is in the utilization and preservation of available production capacities, an increased volume of agricultural production, and modifications of production structure towards intensive productions, the production of high final and high-quality products. Goat milk and goat cheese occupy a significant position in the production of quality food in dairy industry. In our country, due to a large number of hilly and mountainous land, the potentials for the development of goat products industry are considerable, where a significant place is given to the production of white goat cheese. Keywords: goat milk, goat cheese, production, market 1. Market presentation Food production, alimentary security of the country, production of raw materials (other branches), exchange with the world, social, demographic and other aspects are determining, among other things, diverse importance of agro industry in the socio-economic development of Serbia. Agricultural activity, according to the available significant natural and human resources, and the achieved level of production and processing, is one of the most important economic activities in Serbia. Trends and directions in agriculture marketing in our country are based on the following directions: - replacement of production and sales concepts with the concept of marketing, both for large systems of food production, and for individual farmers, - what is important, as in developed countries, along with the marketing concept, the application of the concept of social marketing in order to protect consumers and environment - following the experiences of developed countries. With a general trend of food products consumption, the demand for dairy products will grow. Low and middle level of income of the population generates an increasing size of demand; mature product markets stimulate demand in several phases of processing in order to meet specific requirements. France is the country with the highest production, consumption, and assortment of goat milk cheeses. On the Balkans, the processing of goat milk cheeses is also present, with white cheese in brine having an important role. The average consumption of all types and cheese categories in the European countries is 11.2 pounds. Compared to other world regions, Europe achieves the highest consumption of cheese per capita per year. By far the lowest consumption is achieved by consumers in Asia, where the same average is less than one pound per year (FAO, 2006). The average world consumption is also relatively low with amounts less than three pounds per year. On the regional level, there are significant differences in the level of realized consumption. In the countries of Western Europe, the average consumption is 16.9 pounds, with a growing tendency at a rate of 1.83% per year. At the same time, in the countries of Eastern Europe, consumption is at a considerably lower level, 7.5 pounds on average. The largest European consumer of cheese is Greece, with an average consumption of 25.4 kilograms per capita per year. The large consumption is recorded in France, Italy, Netherlands and Austria. These are the countries with high domestic production, developed dairy industry and with a wide assortment of cheeses on the market. Management Journal for Theory and Practice Management 2012/62 The above-mentioned countries have in reviewed period achieved the tendency of growing cheese consumption. The largest European consumers also represent the largest cheese manufacturers; where high offer i.e. assortment of production has an effect on consumption. It is estimated that France produces over 400 types of cheese. For centuries France is famous for producing high quality types of cheeses. The biggest manufacturers are corporations Besnier, Bongreen, etc. Table 1. - The largest European cheese consumers (kg. per citizen), 19962003.1 Country Average Greece France Italy The Netherlands Austria 25.4 23.4 21.3 19.4 19.2 Rate of alteration % -0.7 1.8 2.4 0.7 3.4 Of the total of 38 analyzed European countries, the tendency of increase in consumption resulted in the highest number, i.e. 31 countries. The most intensive increase in consumer consumption is achieved in Ukraine, at a rate of 12.3% per year. The other seven countries in the reviewed period saw a tendency of cheese consumption decrease (Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Greece, Serbia and Montenegro and Romania). The most intensive decrease in the consumption is evidenced in Bulgaria (the rate of 11.49%). In the following period, the quality of cheese will come to the foreground in order to meet the requirements of the most demanding customers (cheese with protected origin, with the part of human labor, handmade, etc.). A whole range of factors affected the realized level of consumption, the factors being of both economic and non-economic nature. Well-known brands of cheese are as follows: Italy: Gorgonzola - semi-hard cheese, Ricotta - soft cheese, Bel Paese - semi-hard cheese Mozzarella - soft cheese Parmesan - hard cheese, the Netherlands: Gouda - semi-hard cheese Edam - semi-hard cheese, France: Cambozola - soft cheese, Gervais fresh cheese, Camembert - soft cheese with mold, Roquefort - soft cheese, German: Tilsin - semi-hard cheese , Greece: Feta - soft cheese, Belgium: Romadour - soft cheese, Great Britain: Cheddar - hard cheese, Switzerland: Emmentaler - hard cheese, Gruyere - hard cheese, etc. According to the level of cheese consumption, all European countries can be classified into several categories, or interval groups: In the first group, with the lowest consumption, under five pounds, are: Albania, Bosnia and Herzegovina, Latvia, Macedonia, Romania, Moldova, the Russian Federation and Ukraine. They make 34.5% of the European population. They are characterized by a relatively low life standard, which affects the cheese consumption. In the consumption interval of five to ten pounds, there are: Bulgaria, Croatia, Estonia, Hungary, Ireland, Lithuania, Portugal, Slovakia, Slovenia, Spain, Great Britain and Serbia. They make 20.7% of the European population. There is surprisingly relatively low consumption in the UK, given the high of income level and the existing offer of domestic and imported cheeses on the market. In the consumption interval of 10 to 15 pounds, there are: Belgium, Luxembourg, Czech Republic, Finland, Iceland, Malta and Poland. They make 8.4% of the total European population. The highest consumption, which is over 15 pounds, is in: Austria, Denmark, France, Germany, Greece, Italy, Netherlands, Norway, Sweden, Switzerland and they make the most numerous part of the European population, 36.4%. They are characterized by high income level and various market offers, and as well as by tradition and habit of cheese consumption. 1.1. Serbia and neighbouring countries 1.1.1. The Republic of Serbia With the consumption level of 8.9 kilograms of cheese, which is more than two pounds less than the European average, our country occupies the 20th position in Europe. During the reviewing period, the consumption of cheese decreased, at an average rate of 3.9% per year. 1 www.fao.org Management Journal for Theory and Practice Management 2012/62 Table 2 Cheese consumption in the Republic of Serbia, average 1997-2003 Territory Serbia Central Serbia Vojvodina Kilog ram 8.9 10.5 5.0 Rate of alteration % -3.9 -2.5 -3.2 CV,% 7.5 9.7 7.3 In the structure of cheese consumption, the dominant are so called soft cheeses, and the portion of hard cheeses, i.e. cheeses with higher dry matter content, is significantly lower. This is conditioned, first of all, by the high level of the retail price. The consumer in this country, with an average monthly income managed to purchase about 40 pounds per month the hard cheese (Trappist, etc.) in the year 2005, which is far less compared to consumers in developed countries. Based on consumption surveys conducted in Novi Sad and Zrenjanin, out of 100 respondents (2006), three-quarters find the price of hard cheeses (Trappist) relatively high compared to the current life standard of consumers. It represents a limiting factor to further increase. The consumers with the lowest income are particularly vulnerable to high price. In the following period, it is necessary to undertake significant steps towards improvement of the cheese quality, assortment expansion, and the implementation of appropriate marketing activities, improved packaging and packing material. It is necessary for the Ministry of Health of Serbia to foster the consumption of this essential food with appropriate activities. The past decade brought remarkable changes in the attitudes about rearing goats, in an increased interest in the more intensive types of breeding goats especially in individual households, but it is not yet sufficiently apprehended or well-covered. The growing interest in goat breeding has led to goat demand, especially highly productive goats, because a large number of interested parties want to apply for a more intensive system of rearing goats. However, lack of quality breeding goats in Serbia today results in interested parties beginning the production with a small number of goats. Apart from this, in practice, a problem occurs when the needs of breeding goats are identified with food, accommodation, equipment which is incorrect. In food production, this is often recognized as a consequence of the modesty of goats, resulting in identifying dietary needs with the needs of sheep. Although there are many similarities in the accommodation facilities and equipment, certain differences must be accounted for. This concept leads to negative consequences, and lower production, especially when it comes to high dairy goat breeds. The process of reconstruction of rural agricultural production into farm model (market-commodity) form is completed in many countries, and some are still in progress. In this country, including the region of Čacak, these processes are still in the beginning phase; farms gradually disappear, allowing commercial types of economy to step in. The process is slow, not only by its nature, but also for indecision of competent state bodies in taking the necessary economic and other measures to accelerate the process. However, the overall reconstruction of current rural type agriculture organization (and household) is inevitable, because without economic stabilization, not only agriculture but also the overall economy is not possible. In this area, households oriented on dairy cattle breeding and milk production will have a special place. The Republic of Serbia, although with favorable conditions for goat breeding (geographical location, relief, soil composition, flora, people and life standard) is deficient in goat meat, milk, milk and dairy productsa, especially when it comes to high dairy goat breeds. Erceg family company is the producer of goats cheese in this country. The company owns a farm of over one hundred goats and as many young ones, and owns an official certificate of the Faculty of Agriculture of Novi Sad for the production of the best goat cheese in Serbia. Currently, their production is based on three types of cheese - Trappist, butter and slices, and it is made in the traditional way, with proven popular recipes from the area of Podgrmeč, where they are from. The sale goes without difficulties, as they have regular customers from Belgrade where, and according to purchase orders, they could place a larger quantity of products in comparison with the current situation. This country has excellent but unexploited opportunities for goat breeding production. In general, livestock in the country is not valued, although in this industry, we could be at the European top. We have fertile soil, favourable climate, market, people who can and are will Management Journal for Theory and Practice Management 2012/62 ing to work; with necessary state government plan for a long term strategy of cattle breeding development, as this is the most important part in the entire food chain production. Racković family from Ljubić near Čačak opted for goat farming and goat cheese production. They started with the parent flock of 50, and today there are more than 200 goats on a goat farm Ljubica. A newly built facility of 1,000 square meters can house 600 heads, and the increase in production from the current 15,000 to about 400,000 litres of milk per year is included in a three-year plan. The production of three types of cheese, by Racković goats milk is of the supreme quality according to all analyses and controls of the Veterinary Institute in Kraljevo. In addition to the standard soft cheese, they also produce the hard cheese based on the French technology, and both types are packed topped with olive oil. The Niš dairy plant was founded as a small city dairy with the UNICEF funds in 1957. The introduction of new equipment and technological procedures, with purchasing of new trucks for transportation of raw milk and transport of finished products, the Niš dairy ranges among the top industrial milk producers in Serbia. The range of products includes pasteurized and sterilized milk, sour milk products, soft, semi-hard, hard, cheese paste and butter. Packing and the sale of milk powder and whey powder are also included. Continued market prosperity is continually achieved due to the standardized good quality of products, to new design and package, and due to following the modern trends in order to meet the highest standards of customers. The process of implementation of the HACCP certificate and Quality ISO standard system is intensified. In the following period, the AD Nis dairy plant will work to increase the production and product quality and introduce modern methods of sale and distribution of products in order to satisfy customers needs and the modern consumer. CARP Ltd. from Novi Sad, in addition of freshwater fish breeding, primarily carp in open water, is also engaged in farming of top-level breeding goats of Sana and Alpine race, in a cage system, on the farm Amaltea in Bac. Farm Amaltea was established five years ago. The milking period lasts about 280 days. The milk yield per annum on the farm Amaltea is as follows: In the first lactation: 700 to 800 litres, which is in the period of milkiness, from 3 to 4 litres daily In II, III and IV lactation: 1,000 to 1,500 litres, which is 5 to 10 litres daily. The goat farm Amaltea has a dairy as well. They produce, among other things, fermented sour milk drink with probiotic bacteria. Another economy object was opened in Indjija, with investment value of 80 million dinars. The modern plant for goat milk and dairy products processing is opened within the private company Selekt gas. For the investment of worth close to 80 million dinars the Provincial Secretariat of Science and Technological Development has allocated 35 million dinars. Particularly, in order to realize a more dynamic economic development of Vojvodina based on the implementation of the new technologies, the Executive Council of Vojvodina started, since last year, to invest into the projects which will, within their realization, open modern plants related to new materials and new technologies. This is the only plant for of goats milk production in Vojvodina and probably in Serbia that has been operating in collaboration with the experts of the Agricultural Faculty in Novi Sad, the Institute of Oncology in Sremska Kamenica and Italian partners. The production of raw milk with the hygienic quality is an important component of modern dairy industry, and involvement of Serbian dairy industry in the contemporary trends includes the compliance with the EU regulations. The Indjija Company can be commended with the exceptional quality of raw milk, which is significantly above the quality of raw milk required by the EU standards. Ekomil Ltd. is a family business founded in 1999. year. It consists of two business units: Ekomil Production and Ekomil Shop. Ekomil Production manufactures many types of cheese that are of a very good quality, distinctive taste, colour and aroma. Cheese with the excellent quality also found the customers outside the European conti Management Journal for Theory and Practice Management 2012/62 nent. The production is certified according to the current standards in order to measure the quality of the production process and the product itself. The private dairy Podgora from the village Podgorac, near Boljevac, presented new products from goats milk, with the sour cream and pepper in sour cream primarily. On Timocka Krajina and Pomoravlje dining tables, there are also other, latest products of Podgora which will most likely be registered as a trademark, and those products are rolled and smoked cheese, goat milk and goat cheese from the slopes of Rtanj and Kriv vir, as well as hard cheese from goat milk. The production of diet yogurt and extra sour milk for the elderly also started. Their top technologists are using only the milk from the village of Juzni Kučaj, Rtanj and Homolje. They bought the latest equipment from the West, so they will not be intimidated by any domestic or foreign competition. New pilot-products from the largest private dairy in Eastern Serbia will be soon presented to the market of Niš and Belgrade. Serbia has great advantages for the production of goat cheese, of which are important: foreign investments in the dairy industry, powerful existing capacities for processing; good conditions for cheese production; economically competitive production of bulk food; consumers prefer locally produced dairy products; regionally known types of cheese; available workforce according to the competitive price; traditional cheese production; favorable climate conditions; currently profitable (the milk production can start immediately); potential for new jobs openings in the production segment; using the available pastures; professional services; agricultural institutes and faculties already exist, hence, their expertise assistance is also available. In contrast to the benefits, Serbia has the following weaknesses in the production of goat cheese: traditions are reluctant to change, small farms and fragmented household, farmers do not have the knowledge of how to improve the practice, poor infrastructure (roads); poor quality of milk, poor sanitary conditions, low salaries and weak purchasing power, low milk yield by goats, old milking technology; processors lack the know-how skills, insufficient capacity of the cooling system (lactofreezers, warehouses, etc.) in some areas, milk collecting is not well organized; low level of product diversity; poor product formulation technology, lack of quality management systems; undefined legal status of the producers / farmers makes it difficult to obtain a loan; bad connection of professional services to agricultural producers and institutions; lack of solutions to improve the livestock production and breeding centers, and markets for the sale of livestock with improved genetics; lack of ISO-9001/HACCP certificates for manufacturers, which are provided by officially accredited organizations. The major reasons which make the customer purchase products at a certain place are presented in the table below. Table no. 3 Purchase reasons Reason Proximity Prices Habit Freshness Kindness % 53,0 16,4 15,4 8,00 7,2 Orientation of buyers to purchase in the objects within the area of residence is noticeable, which is logical given the nature of the product. Thus, a broad presence in retail outlets is a necessary prerequisite for market success. The price and habit ratio is also significant as a key factor. Purchase decision is under the influence of many factors. Some of the main factors influencing the decision to purchase milk and dairy products are shown in the table below. The respondents evaluated the importance of each factor with scores from 1 to 5, where 1 is minimum and 5 is maximum. Management Journal for Theory and Practice Management 2012/62 Table no. 4. Purchase factor2 Factor Healthy food Quality Availability Duration period Habit Local product Producers tradition Price Package Exposure on shelves Advertising Promotion at the place of sales posters, fridges Discount sale Ocena 4,80 4,79 4,79 4,53 4,51 4,32 3,49 3,00 2,81 2,27 2,11 2,10 1,91 It can be noticed from this table that healthy food is a very important factor which affects the purchase, providing the opportunity for differentiation, with delivery of good quality and good market coverage. Also, it is noticed that the promotion (in various forms) is an element of marketing that has a relatively low importance in purchase decision. Quality is the one of the major determinants in purchase decisions. What makes the quality of milk and dairy products is the following: Table no. 5. Quality elements Quality element Taste Aroma Grease Freshness Duration period Package Product appearance % 32.0 22,0 16,2 16,1 8,8 3,9 1,0 The customers concern for their health and dedication to healthy food is especially shown in the following table, which shows that 93.6% of respondents prefer lactic sour beverages with a duration period up to 20 days, or products with less preservative or no preservatives. Table br. 6. Preference according to the duration period4 Statement Preferred duration period up to 20 days Preferred duration period above 20 days Duration period is not important to me % 93,6 4,0 2,4 2 Own review 3 Own review 4 Own review Management Journal for Theory and Practice Management 2012/62 Manufacturers are not dictating the placement of products on the shelves, unless the manufacturer offers promotional refrigerators, for storing their products exclusively. The placement is determined by retailers themselves, which in small retail outlets, where there are no open refrigerated display cases, have a significant impact on the purchase decision. All retail outlets are equipped with cooling systems where all dairy products are mainly placed together. The placement of other products in refrigerators is also very present (meat products, etc.), along with milk and dairy products. This practice is particularly expressed in smaller stores, where up to 50% of space is occupied by other products. Based on the information collected during the research, it can be concluded that the milk and dairy products are consumed by almost all members of households, regardless of the number of members and total household income. The production and consumption is dominated by fresh consumption program. The consumption of yogurt and other beverages, cream, various cheeses and fruit yogurt varies from market to market. Retail is a dominant sales channel for milk and milk products, except for fresh cheeses. Demand for products is directly determined and therefore creates the range of retailers. In addition to the demand, the decision for assortment production is influenced by other factors, such as goods delivery. In the following period it is necessary to take significant steps towards improving the quality of cheese, assortment expanding, applying the appropriate marketing activities, improving the package and packaging. It is necessary for the Ministry of Health of Serbia to increase the consumption of this essential food with the appropriate activities. The determining factors for the purchase decision and consumption of products are quality and healthy food, which enables the ability of differentiation to domestic producers. Domestic producers are generally evaluated as producers of high quality healthy products, at a lower price. In contrast to domestic producers, foreign producers have a wider assortment, better packaging, and promotion and they are constantly improving their assortment. On the basis of the reviewof the Serbian companies it can be established that the Serbian market is not saturated and that is in the phase of introduction of goats milk products. The above stated experience of Serbian companies is providing an overview of the current situation and future development guidelines of the Serbian market. The situation on the Balkan market of goat cheese is similar. 1.2. France and the european union countries All Cheeses Cheeses are important market in Europe and worldwide. The cheese market evidenced an important progress at the European plan, per capita consumption (kg / capita.), and is increased by 30% in the past 10 years. France continues to be the leader despite of the existing disparities. The global production is 14.200.000 tons, Europe represents 1 / 3 of market with 5.7000.000 million tons of produced cheeses (France produces 1.000.000 tons, with 50% of cheese exported). Management Journal for Theory and Practice Management 2012/62 Graph no. 1. Cheese consumption (kg/citizen)5 Cheeses represent 50% of French dairy products export, which represents 1.5 billion euro. This performance is explained by the increase in interest for the French national cheeses on a global level, identified by the taste drawn by French gastronomy and skills recognition. Dairy products occupy the first place in the French household in consumption. With 6.8 billion euro each year spent on purchase of dairy products, cheeses take the first place and represent 40% of consumption (7% of the consumer basket for food of French households). The consumption of cheese carries the image of good health, taste and easy access to products that justify the high frequency and percentage of consumers (96% of the French consume the cheese minimum once a week). Cheese is present at the end of two meals of three. As for Greece, a quarter of cheese consumption is based on the Feta cheese and a quarter on pressed cheeses, mostly from imports. Goat cheeses Cheese production was stabilized in 2006. There was an increase by 6.6% in goat cheeses, and by 6.2% in sheep cheeses. Cow cheeses represent 92.1% of the market, goat cheeses 4.6% and sheep cheeses 3.2%. The World leader in the production of goat cheese is France with the amount of 100,000 tons produced in 2006, on dairies and farms. As regerds the production of goats milk, France is the European and world leader in the production of goat milk with 562 million litres of goat milk produced in 2000. France owns 6,000 manufacturers of goat milk, of which: 45% process the milk into goat cheeses on farms, 50% deliver the milk to factories which produce goats cheeses, 5% process the milk on farms and deliver to factories that produce goat cheese. 5 www.fromagesdechevre.com Management Journal for Theory and Practice Management 2012/62 Graph no. 2. The structure of goat cheese production in France6 15% of goat cheeses produced in France are fresh goat cheese, 100% of goat milk. 80% are mature goats cheeses, 100% of goat milk 5% are ½ goat cheeses (a mixture of various milk). France is the first manufacturer of goat cheese in the world. More than 100.000 tons of goat cheese wass produced in 2006, of which 86.000 tons in dairies and 15.000 tons on farms. A large part of the production is consumed in France. As regards exporting, 12% of cheese is exported, mostly to the northern countries of Europe and to North America. The consumption of cheese by regions in France is presented in the following map. The presented number is the indicator of consumption obtained based on the 100 base, which represents the state average. Indicator> 100: Consumption above the national average Indicator < 100: consumption below the national average Graph no. 3. Cheese consumption by regions in France7 Outlets in 2006, represents 77.9% of sales in supermarkets, hypermarkets with 18.9%, hard-discount and 3.2% in self-service markets, traditional shops and other sale channels. In order to establish the guidelines for communication for the future marketing campaign, the ANICAP (Association nationale interprofessionnelle caprine = National association of goat-breeding professionals) hired the agency Repères for the study of habits and behavior of the French in terms of goat cheese. The Agency conducted a survey with a questionnaire on a sample of 600 consumers of goat cheese, aged above 20 years, representative for the French population. The survey was conducted in December 2000. The most important results of this study are: 6 www.maison-du-lait.com 7 www.lactalis.fr. Management Journal for Theory and Practice Management 2012/62 a - Comparison with other categories of cheese: In respect to market penetration within the last 12 months, in parallel to other types of cheeses, goat cheeses occupy the fourth place with a percentage of 81% after the heated pastry and floral cheese parings. Its consumption is common. - In daily meals, goat cheese takes the third place after the floral cheese parings and cheeses with heated pastry. For delicious meals, it takes second place after the floral cheese parings - Regarding its presence in consumer minds, goat cheese takes the fourth place and soft cheeses as well with washed parings, much less than the soft cheese with floral parings (45%), pressed cheese with the heating (16%), pressed cheeses without heating (11%) and cheeses with spicy pastry (9%). - As for the image, goat cheeses which are acceptable, if the measure is on a scale of 0 to 10, are cheeses with floral parings (7.9), and pressed cheeses (7.8). They are assigned this position due to being highquality cheeses and cheeses which are accessible to all consumers, and which can be consumed every day and everywhere. Goat cheeses are considered to be high-quality cheeses but are less accessible to all consumers and therefore evaluated with 7.0. b - The evolution of goat cheese: In the imaginary world of consumers, the production of goat cheese is not concentrated on one particular region and production conditions are for the most of surveyed customers trade-type (small exploitations, free goats in the pasture, large concern of breeders about goats ...). As far as the frequency of goat cheese consumption: 37% of consumers consume goat cheese often (1 time per week) 30% of consumers consume goat cheese occasionally (1 time per month) 14% of consumers consume cheese rarely (1 time in 3 months). For consumers, goat cheese is tested for taste, composition, and form and health contribution. Non-consumers reject the goat cheese because of the strong flavor, aroma and composition. c - Reputation and consumption of various goat cheeses: Consumers quote the following names of goat cheeses spontaneously: Chavroux (41%), Chavignol (31%) and Sainte Maure (16%). There is a real potential in the development of goat cheese consumption. Certain steps should be taken considering the occasional consumers: - Work on the consumption image, which should rely on a variety of goat cheeses assortment and on the goat for which the breeding conditions are natural in the imaginary world of consumers. - Work on goat cheeses availability to all consumers, on a daily basis and have a product offer with very rich variety of goat cheeses. In terms of the brand and its presence on the goat cheeses market, the situation is as follows: Soignon occupies 19.7% amount per annum (ending the year in October 2007), and Président (5.8%), Chavroux (4.0%), Saint-Loup (3.8%), Petit Billy (2.9%), Coeur de Lion (2.2%) and Rians (2.2%), while cheeses under the brand name of distributors represent 45.8% of the market. Based on the abovementioned information, it can be concluded: That France is a leader in the production and consumption of goat cheeses, although it owns a fourth flock of goats in Europe. This shows that this market has the best utilization of its potentials in resources of goat milk and goats milk products, because 80% of French population consumes goats cheese. This market does not require consumer education because the tradition and experience in production and consumption of goat cheeses have already been acquired by the consumer. This means that this market requires a high Management Journal for Theory and Practice Management 2012/62 quality of goat cheese being a connoiseur of them. The most part of the French production of goat cheese is consumed in France (88%), and the rest is exported. The cheese is mostly sold in the supermarkets and hypermarkets (77.9%), and the market leader is the Soignon brand (22%). 1.2. Market proposal Based on previous data and analysis, markets for placement of goat cheese products can be perceptible. 1.3.1. Balkan market It is necessary that the Serbian market as the primary market should be covered first. Also, it is necessary thaat these products should be placed to the markets of neighboring countries such as Bosnia and Herzegovina, Croatia, Bulgaria, Romania, Hungary, Macedonia and Greece. The population of these countries possess the same or similar method of goat milk products consumption as Serbia. This market will require similar products from goats milk based on their habits of goat cheese consumption. First, it is necessary to cover our own market, and then all the other markets in the region. Positioning itself as a leader or as one of the leaders on its own market will allow the credibility to a company to be very familiar with the parent market and its product as well. On the Balkan market, cheeses of goats milk that are not strong, and of typical taste will be placed, because this population of consumers have yet to get used to goat cheeses with strong flavors. It is necessary to produce mild goat cheeses. It should not be forgotten that the purchasing power of this market is on the middle level and habits of goat cheese consumption are not yet developed. Serbia can follow the example of France in the development of goat cheese production and thus become a leader on the Balkan market. The Serbian market can become a promoter of other Balkan cheeses, when conditions are met, under the condition to control the production quality. 1.3.2. French - European market France is the largest market in the production and consumption of all types of cheeses. Goat cheeses are mostly consumed in France, which has the primacy, experience and tradition in the production and placement of its products. France is also famous for its wine and pastry which influences the psychology of consumers on all continents. Developing a picture of good food, France is today a reference for all countries that wish to sell or promote their food. With this image France influenced very fast first the countries from its environment and thus managed to place its products. Germany is the first country toward which the export of French cheeses is orientated (high purchasing power, large population). The diversity of French cheeses provides a great opportunity for cheese placement, because this type of consumers have no preconceptions about the taste of goat cheese. This market should meet the quality assortment of goat cheeses with typical, medium-strong flavor but with the respect of certain shapes and characteristics. This market has high purchasing power, experience and heritage in the consumption of these types of cheeses, which is the best indicator of success or failure of new products placement. France is the driver of development of goat cheese consumption and the best example of success in this area. The positioning of the Serbian goat cheeses on the French market would be a very important strategic move, because if that market is won, other EU markets would follow the trend of the French market. In this way France can be the best promoter of Serbian goat cheeses, not only on its territory but also in other EU countries. A Serbian company that wants to position itself on the French and European market would encounter certain problems, which would be solved in cooperation with French companies, because they already have extensive experience in the placement of these products. It is necessary to contact and cooperate with the French associations of French companies which would be advisors and partners for the placement of Serbian goat cheese. Management Journal for Theory and Practice Management 2012/62 LITERATURE [1] H. Evan Drummond, John Wgoodwin, (2001). Agricultural Economics. New Yersey: Prentice Hall [2] Statistical Office of the Republic of Serbia, Customs Administration, Industrial and expenditures for human food consumption, calculated according to the USAID method, loss evaluated [3] Radosavljevic, K. (2008). Analysis of Raspberry Marketing Channel, example of Arilje Cooperative and Jugoprom d.o.o. factory, Management No. 49-50, 63-72 [4] The Ministry of Agriculture, Forestry and Water Power Management (2009). Agriculture 2009 Retrieved from http://www.mpt.gov.rs/ [5] Food and Agriculture Organization of the United Nations. (2009). Agriculture and Consumer Protection Department 2009 Retrieved from http://www.fao.org [6] Agrar. (2009). Goat breeding in Serbia 2009 Retrieved from http://www.poljoprivreda.co.rs [7] Discover French Goat s cheeses. (2009). Goats Cheeses by shape 2009 Retrieved from http://www.fro magesdechevre.com [8] Maison du Lait. (2009). Des produit et services documentaires 2009 Retrieved from http://www.maison du-lait.com [9] Le Lait une ressource essentielle. (2009) Le Lait une ressource essentielle 2009 Retrieved from http://www.lactalis.fr. [10] Le fromage de vache. (2009) Le fromage de vache 2009 Retrieved from http://www.eurial-poitouraine.fr Receieved: 04. 2009. Accepted: 01. 2012. About the Author Katica Radosavljević University of Belgrade, Faculty of Eeconomics e-mail: katica@ekof.bg.ac.rs Katica Radosavljević was born on 16 July, 1975 in Gothenburg, Sweden. Since 2000, She has been employed at the Faculty of Economics University of Belgrade. She was a manager of two projects related to the valuation of corporate capital. She also assisted on numerous projects, among others: Market Analysis for Construction of Wholesale Markets on the Target Micro-location, project of the Ministry of Science, Technology and Development, Republic of Serbia Planning and Management of Sustainable Development in Conditions of Transition to Market Economy - institutional adaptation to EU practices and standards and Tourism Development Strategy of the Republic of Serbia . Management Journal for Theory and Practice Management 2012/62 Gordana Milosavljević, Zorica Tanasković University of Belgrade, Faculty of Organizational Sciences Transition and Job Maintainance in Serbia UDC: 330.341.2 ; 005.96 DOI: 10.7595/management.fon.2011.0003 As a 20th century phenomenon, transition in the former socialist countries has changed the prospects and the further flows of economic activities of the companies and other business oriented entities. Since 1990, privatisation as a process has become a category of paramount changes in both socio-political and economic aspects. The economic purpose of transition is to develop a successful, competitive and capable economy that will transform the countries with socialist economic mechanisms into completely market economies. Key words: transition, human resources, organization, economic development, industrial development, employment, stress. 1. Introduction The self-management economic system in the socialist countries did not succeed in ensuring an adequate economic development, hence the systems change in economy has become indispensable. This means that the economies of once socialist countries need to be transformed primarily in the sense of ownership, in order that they can define the rights of ownership and decision-making on the basis of this right, and then to take part in the global competition, playing by new rules, with clearly defined goals and strategies of their own development. Simultaneously, this becomes one of major issues in assessing the importance of transition for the purpose of forming new strategies to be the drivers of economic growth and development. Very important in the transition process is an adequate and quality selection of strategies for a successful implementation of the set goals and business activities of the company. Defining a relation between transition and the company development is of vital importance in forming strategies for achieving a better and faster development. Transition is expected to incite a succession of sequential changes and aid in establishing new, more efficient mechanisms of economic activities. It is an indispensable constituent of market economy, since it is only the clear ownership relations that allow for a company to be autonomous in its decision making. The notion of transition means passage or transfer. From an economic point of view, this notion means a passage from one system into another, from a non-market to a market concept of economic operations. The transition process in the East European countries bagan in the 1990s. It is a difficult process, burdened by uncertainty and controversy. The process itself of transition from socialist type of economy into market economy means the transition from state and social ownership, from self-management-centralized planning and bureaucratic management and control into private ownership, free market and individual entrepreneurship. The other basis for a successful transition to market economy is the change on the microeconomic level, namely, on the level of the company (autonomy in business, abolishing the state monopoly in production, doing away with the centralized planning of the market and the liberalization of trade). Nearly all transition countries are characterised by volatile macroeconomic conditions and tend to stabilize the relations in their economies. This volatility is especially characteristic of the monetary policy of the states and its causes lie in high inflations. It is a result of a disbalance in numerous activities (high budgetary expenditures, unrealistic exchange rates of national currencies). According to the experiences fo far, the transition process has in its early phases shown its destructive nature, reflected in the decrease in the scope of production, the decrease in employment and the fall in the Management Journal for Theory and Practice Management 2012/62 standard of living). This is corroborated by the fact that in this decade of transition process, the East European countries, the least developed section of this region, have managed to achieve only around 75% of the inclome they used to achieve in the pre-transition business model. This resulted into the rise of unemployment and the fall of the living standard. According to the data reported by the World Bank, the purchasing power of these countries, in comparison with that of the more developed regions of Central Europe, amounts to 33% of the average power of these countries, calculated on the parity basis. The data further show that in eight years (1990-1998) the income of the countries in transition fell to 24%. Furthermore, according to the Institute of Economic Sciences calculations, it will take the East European countries full 50 years of a continual 5% growth in the gross domestic product to reach the average income enjoyed by the European Union members at present. After more than a decade, the GDP level in the transition countries has not yet reached the level it was on at the beginning of the reforms (Table 2.3). Rare are the countries that succeeded in achieving the level of development they had before they entered the economy restructuring processes (the Czeck Republic, Hungary, Slovenia, Slovakia, Poland), as a starting point for further development based on new market principles. It is obvious that this process requires more time than the creators of change expected at the start and that transition is by far a more difficult job than it was supposed to be. 2. Transition and changes in the company According to the research presented in this paper, the dominant population of loosers in transition are people between 40 and 50 years of age, those of lower qualification profile, traditional occupations characterised by obsolete technology; there is no longer a market for routine employees, either. People used to be employed expecting to maintain the same job until the end of their working life and for a majority of them such expectations came to be realized. Since the 1970s, however, there have been a lot of changes in this domain. Jobs have become highly competitive, and many a routine and unskilled job has become extinct. In such a situation, the concept of a job for a lifetime slowly fades and is abandoned. The creation and maintenance of the advantage over the competition have become a priority with the companies. In such conditions, and in an effort to maintain the leadership or to survive, companies focus upon the four key domains: The need to diversify; The need to constantly review the organizational structure and the employees needs; The need to implement technology in the best possible manner; and The need to focus upon clients. In the globalization process, the human resource market becomes increasingly dynamic. The turbulent changes in the business environment require an adequate strategic approach, that is, a strategic behaviour of a company as a universal business system. Accordingly, knowledge becomes the most important resource and a key factor of business success. Starting from a strategic approach, modern companies conduct a continual study of the human resource market in the global market and the business environment contexts. Thus companies gather adequate information necessary in making rational decisions and in being flexible in adjusting to the conditions and change in a global environment. The present and newly employed therefore will have to master new knowledge, skills and prospects on a permanent basis, and it will be required that individuals should manage their learning and careers. Management Journal for Theory and Practice Management 2012/62 3. How firm is resistance to change Traditional theories highlight the importance of the training of emplyees in different hierarchical structures. This is a logical consequence of the absence of a strategic approach in the management theory where the human factor is neglected and the employees are not motivated to make efforts to achieve optimum results, nor are they motivated to undergo training and development. The causality between the achievement of individual and organizational goals is not characteristic of traditional companies. The employees experience training as an enforced obligation, rather than a way to fully express their potentials and they do not view the improvement of their performance and knowledge innovation as a contribution to higher business results of the company they are employed in. The training in such companies is an ad-hoc process that does not stem from goals and strategies, but is exclusively in the domain of the operational levels responsibility. Training in traditional companies is a one-time process that is organized periodically, most often when business problems arise or are perceived and it is assumed that they are possible to mitigate or solve through the organization of training, courses or seminars for certain employees. The fact is that the change that is present in all segments starts to affect the general attitude towards employee training and development, as well as towards the need for a permanent innovation of knowledge. In the knowledge society, human factor is the major resource that contributes to growth and development. There still exists, however, a lot of prejudice as regards human resource training and development, expressed through various attitudes: 1. Training is expensive; 2. Training is meant for young professionals; 3. Development and skill should be the responsibility of the personnel training director; 4. It is not worth training the employees that will leave the company anyway, 5. Training is not worthwhile we tried and we did not succeed; 6. Development of knowledge should focus primarily on technical issues; 7. Training can be implemented without the change of management. Each of the above attitudes is a result of the traditional understanding of the employee role in the company. These attitudes are outdated today, when the knowledge of individuals and companies prove to be the most decisive factor of survival. 4. How can we keep pace with change All the employees in the company are forced to learn and master new knowledge in step with the change. Nowadays, is a truly entrepreneurial society, individuals have to learn new things long after they have become adults. Practice shows that people generally leave those companies that do not pay due attention to education, whereas they are longer and closer tied to the companies that invest considerably into the human resource development and give people an opportunity to broaden the boundaries of their knowledge and skills. The modern company makes a step further from the concept of education and the provision of expert knowledge to ensure the conditions for the personal development of human resources and the improvement of their skills and knowledge that directly affect the health and the quality of living of an individual, while indirectly affecting business performance. The importance of information, knowledge, and, finally, man as an individual agent in human development prove to be a lasting and permanent trend of the modern age. It is an often heard assumption that people are our largest unexploited resource so far, resulting into larger companies permanently conducting some sort of training or other. Of essential importance for the training and development to be able to fully contribute to success and survival, that is, achieving and maintaining the competitive advantage, is the very philosophy and concept of the management in these companies. Human resource training and development are a consequance, rather than cause of change in the management system. This causality interaction is simultaneously characteristic of the change in the business environment. Management Journal for Theory and Practice Management 2012/62 In the course of the transition into a knowledge society both individuals, companies and states find the adoption of the lifelong learning concept to be imperative. A successful learning company is capable of recruiting and retaining most talented people, to include them into all the processes and motivate them to generate and exchange knowledge, making it possible for them to maintain and improve their individual professional skills in return. Characteristic of it is a philosophy and concept of management, that is, of human resource management that fosters trust and encourages and supports the employees in achieving organizational goals and that identifies, assesses, rewards and developes performances that are the core of the companys success. As an integral function of global management, human resource management has a task to explore and define, that is, try to explain what it is that makes the organization unique on the market. The concept of a learning company is one of the footholds of human resource management that allows for a simultaneous focus upon two primary areas: learning and the job position that enables it, i.e., the context in which learning takes place. In order that the company should keep pace with change, it is necessary that it should radically redefine the postulates it exists on, change the philosophical and conceptual dimension of management, treats its employees as its primary concern and provide the milieu in which they will learn and work. The learning company cannot be built at once; this process requires a long-term strategy. It is assumed that any learning, whatever is being learned in the process, is good, however, the value of learning is in the results it brings. Learning per se, therefore, is a means, not an end. Observation and even a quite superficial analysis of a business environment show that it is smart companies who lead today. (G. Milosavljević, 2008). 5. What prevents us from changing In his work A Practical Approach to Meeting Business Needs in the Future (1982) Michael Green, a change management consultant, lists eight specific obstacles to organizational change, and these are as follows: Lack of vision and mission. If an organization lacks a vision, if it lacks a feeling of what it wishes to create, there is no hope that it will inspire its management and the employees to adopt the enforced change. There is no orientation without a vision. There is no purpose without a mission. Lack of social values. How do we wish to act, to be consistent in our mission, and at the same time tend to fulfill our vision? Every organization has to have a set of leading principles on which it conducts a daily work process. These principles may include integrity, the partnership spirit, the cost control and innovation. Whatever they are like, it is certain that you cannot have an appropriately conducted business without them. In fact, without a common and adequate set of leading principles, different jobs will be performed in different ways, which will result in inconsistency in business as well as in conflict. Lack of balance. Balance is absent when the goal of an individual or a group is not focused upon the entire mutual success. When the employees do not work towards a common vision or a common goal, the companys efficiency and effectiveness fall and incurr large costs. Lack of adaptability. If there is a set of important values or leading principles, the employees are expected to act in accordance with these. Relying on these principles and the belief that their decisions are the right ones is a proof that they will be able to rely on others to do the same. Adjustment and adapting contributes to reliability, permanence, connectiveness and completeness. Lack of management skills. If the speed of change is high, a need emerges for a younger generation of managers capable of recruiting and motivating the employees for their strategic visions to step in. Extreeme team inefficiency. An increasing number of organizations are oriented towards lower hierarchy, higher flexibility of work tasks, and a greater need for team work. As always, in case of the change in management, the work of the top manager is of the greatest practical and symbolic interest. Management Journal for Theory and Practice Management 2012/62 Individual inefficiency. The circumstances in which an individual proves ineffective in the speed at which he/she achieves the organizational goal (the position of the problem, lack of skill, conflicts among personnel, lack of self-confidence) but is a member of the management team. It is then that he/she becomes an obstacle to the process. Employee resistance to change. There is plenty of evidence concerning resistance to change and the methods to solve the problem. Research have shown that once defined right vision and values define the method in which resistance to change is dealt with. If any of these obstacles prevents or hinders change, the employees experience stress. Stress is present when people are faced with change in any domain of life and when they feel they have no opportunity nor ability to cope with the newly developed situation. Introducing change. The problems concerning adjusting to and adapting to change should be well thought of before any of the change processes has begun. One of the best methods of achieving this is simply conducting a research as regards the proposed change. Managers are sometimes afraid to follow such an approach because they fear the answers of the respondents. There is an alternative method that allows for the employees to speak their mind freely, in writing or at the meeting with a manager, with discretion guaranteed. 6. Transition as new job opportunity The result of the transition which brought forth a significant change in the ownership structure through the processes of privatization and restructuring of state-owned and society-owned companies is a change in the employment structure. According to the Statistical Office of the Republic of Serbia (2008), more than 38% of all the employed in 2004 worked in socially-owned or state-owned firms, while slightly more than 27% were employed in privately-owned firms, and 22% were self-employed. Large structural changes came towards the end of 2007, when the percentage of employed in the social sector fell to 31%, with a rise in the employment in the private sector to 38%. Another indicator of transition in Serbia is the change in the structure of firms in which the employees worked. While in 2002 the largest number of the employed worked in large companies with over 250 employed, in 2007 only 8.7% people were employed in large firms. It is obvious that the competitiveness of large state corporations, the basis of Serbian economy in the previous economic system, was not high enough to remain unharmed by opening the market to all the competitors. Today, the economy of Serbia has over 50% employed in microfirms with fewer than 10 employees. Serbia set this trend for the purpose of the development of small and medium-size enterprises, however, from the viewpoint of human resource management, the situation is less favourable than before. The reason is that it is more difficult to establish a system of quality human resource management in small organizations, since more attention is paid to maximizing the exploitation of the existing competencies and skills of the employees. Large companies and organizations developed training management that is in charge of all the acute problems of training. It happens, however, that small organizations do not have this function developed to a sufficient degree; they most often have one or two persons whose responsibility are personnel issues as well. The number of incumbents is not as important as their competence. Conslusion A long-term, strategic goal of a modern proactive organization is investing continually into knowledge, skills and competencies of human resources as well as increasing the total value of the intellectual capital of the company. This goal is achieved by setting human resource training and development as part of strategy in the company, which then results into a learning company and entrepreneurship. Human resource training and development should be incorporated into human resource management and operationalized in such a manner that it should allow for nursing and increase in the intellectual capital of the company. Management Journal for Theory and Practice Management 2012/62 REFERENCE [1] Agencija za razvoj MSPP(2003): Strategija razvoja malih i srednjih preduzeća i privatnog preduzetništva 2003 - 2007, Beograd. [2] Bari Lenson, Dobar stres, loš stres, Sezam book, Zrenjanin, 2007. [3] Bajec J., Joksimović LJ., Savremeni privredni sistemi, Ekonomski fakuzltet, beograd, 2006. [4] Claire Michaels Wheeler, 10 simple solutions to stress, New Harbinger Publications, Oakland, USA, 2007. [5] Cerović B., Ekonomika tranzicije, Ekonomski fakultet, Beograd, 2004. [6] Gi Sorman, Velika tranzicija, Novi Sad, 1997. [7] Glazjev, S.,Mirovoj ekonomičeskij krizis kak process smeny tehnologićeskih ukladov, Voprosy ekonomiki, 2009. [8] Indera Murphi, No Stress Tech Guide To Crystal Reports Basic For Visual Studio 2008, Paperback mar 24/2008. [9] Ibrajtner G., Problemi i zablude u oblasti zapošljavanja, Novi Sad, 2007. [10] Hunya G. (2002: Recent Impacts of Foreign Direct Investment on Growth and Restructuring in Central European Transition Countries, WIIW Research Reports [11] Horst S., The Transformacion of Eastern Europe, Institut fuer Weltwirtschaft, 1991. [12] Kosović D.,Stres, Čigoja, Beograd, 2004. [13] Mihailović D. Borovnjak V. Menadžerski stres, Fon, Beograd, 2008. [14] Mihailović D. Ristić S. Menadžment ljudska strana, Fakultet tehničkih nauka, Novi Sad, 2006. [15] Milosavljević G., Traning i razvoj, FON, Beograd, 2008. [16] Milosavljević G.,Projektovanje obuke, Bemust, sarajevo, 2003. [17] Orlić R., Kadrovski menadžment, zoran damjanović i sinovi, beograd, 2005. [18] Stiglitz J. http/ www/ ien, bg., ac. rs/poepl. [19] Stiglic,D. E., Protivurečnosti globalizacije, Beograd, 2004. [20] Tranzicija u Srbiji i globalna ekonomska kriza, Naučno društvo ekonomista sa Akademijom ekonomskih nauka i Ekonomski Fakultet, Beograd, 2009. [21] Trkulja J., Bilans promena, Zbornik radova sa naučnog skupa Iskustva tranzicije: Srbija godinu dana posle Kikinda, 2001. Receieved: 06. 2011. Accepted: 03. 2012. About the Author Gordana Milosavljević Univerzity of Belgrade, Faculty of Organizational Sciences e-mail: milosavljevic.gordana@fon.bg.ac.rs Gordana Milosavljević, Ph.D. is a full professor at the Faculty of Organizational Sciences. Her field of interest is education, e-learning and training management. She is the author or a coauthor in more than 50 research papers and she published six books in the field of training management. She is head of the Center for Human Resource Management at the Faculty of Organizational Sciences. Zorica Tanasković University of Belgrade, Faculty of Organizational Sciences Zorica Tanaskovic has an MSc from the Faculty of Organizational Sciences, University of Belgrade. She is a PhD candidate in the field of human resource management. She works as a lecturer at the High technical-business school in Uzice. Management Journal for Theory and Practice Management 2012/62 Snežana Knežević¹, Draginja Đurić², Veljko Dmitrović³ ¹³University of Belgrade, Faculty of Organizational Sciences, ² Banca Intesa General Fnancial Rporting and Secial-Prpose Rports of Bnks UDC: 336.71:657.631.6 DOI: 10.7595/management.fon.2012.0005 Users needs for information are not always the same. General financial reports do not provide all the information different interest groups require in their decision making, hence the restraints in reporting by the company and the accounting are understandable. Financial reports inform on something that happened in the past, whereas the users of these reports are more interested in the future. Financial reporting can be classed as general and special-purpose reporting. The bank accounting department offers the information portfolio for varied management needs in the form of a number of ex-ante and ex-post reports to be composed in different time intervals, i.e., according to the needs of different users. Key words: reporting, bank, accounting 1. Introduction Banks rank among important entities of both the financial market and the entire system of economy financing; namely, banks have become direct or indirect drivers, catalysts and control mechanisms of the financial system, indispensable in the reproduction processes. The conditions in which modern banks operate are characterised by uncertainty, an ever fiercer competition, and innovation in the area of banking technology. Hence it is of vital importance to establish an adequate information system in the bank, one that will be the instrument of business and financial decision-making. Significant evolutionary changes are present today, oriented towards creating modern banking institutions adjusted to change induced by the globalization of the market, internationalization of business, development of information technologies and especially by a competitive economic environment. Constant interactions with events from both inside and outside banking institutions require that the quality of financial reporting be maintained high. Financial reporting helps improve the transparency of processes on the capital market, protect the investors interests and improve the safety in the decision making process. As such, it plays a very important role in the processes of mitigating information asymetry as well as in maintaining the stability of the financial system. On the other hand, the complexity of business transactions, the necessity of accounting options, the unethical behaviour of the participants in the reporting process, etc., often result in information in financial reports deviating from the economic reality in practice. A better accounting information system is frequently taken to be one of the key items in aleviating difficulties in banking, i.e. in making banks resistant to crises. Poor assessments due to an inadequate accounting information system turn into poor business decisions, into inefficient investments, all of which result into losses in business, even in banking. The right accounting information on business and financial flows are considered to be the real mechanisms for preventing the risks from poor placements effected by the banks. The managerial competence supported by an adequate accounting information system is highly important in bank management. The competencies of the national accounting information system should be brought into compliance with the International Standards in order to allow for the production of quality information for strategic decision making and an optimum money flow. Management Journal for Theory and Practice Management 2012/62 2. General financing reporting Reliable and comparable balance statements, as information sources, are vital in making important microand macroeconomic and financial decisions. The financial reports are part of the financial reporting process. The implementation of international standards of financial reporting improves the quality and the comparability of financial reports, hence it promotes the consistency and reliability in financial reporting and makes it easier for companies to raise capital internationally. A set of general financial reports usually includes: balance sheet, income statement, report on money flows, report on changes of the capital, comments and other reports that are components of financial reports. They, in turn, can also include additional tables and information based on such reports or derived from them and are expected to be read together with these reports. The tables and additional information can, for example, refer to the segments of activities and geographical segments, disclosures of price change results etc. Financial reports, however, do not contain particulars such as directors reports, bank managing board directors announcements, discussions and analyses made by the management and similar specific issues that can be included into financial or annual reporting on banks operations. It is important to mention that the term balance sheet is replaced by the end-of-term (financial position) report, while the term income statement is replaced by that of the overall progress report for the period. The basic goal of the balance sheet is to measure the financial structure or financial position on a specific day. This is a most important indicator of investment on purpose and of source by origin. The balance sheet is the financial report on the overall results of an entity for the period [1],[4]. The report on cash flow discloses the inflows, the outflows and the differences in the amounts of money resulting from business activities, financing activities and the activities of financing during a given period. The structure of changes in the bank capital is the subject of the capital changes report. The comments accompanying financial reports should provide the following information for the needs of a financial report analysis: implemented accounting policies, implemented methods in risk management and in internal control policies, important concentrations of credit risks, territorial allocation of loans, the amount of loans whose interest rates are no longer calculated due to worsened credit quality, as well as the amounts of loans in the process of restructuring, the number of employees, etc. For various external addressees to obtain a more comprehensive information, of specific importance is the so-called disclosure technique, i.e., presenting additional data in the form of footnotes, tables, surveys, in parentheses, etc. that add to the credibility and reliability of certain balance positions. One method in which the management can improve the credibility of their financial reports is voluntary disclosure [2],[3]. The accounting regulations generally provide the minimum required disclosures, however, they do not restrain the management from disclosing additional information if they want to. Voluntary disclosure can be part of the banks annual reports, brochures meant to introduce the bank to the investors, meetings of management with analysts or their relationship with investors in response to their queries for information. Disclosing adequate information on the strategy and their anticipated economic results, however, may harm the bank and its competitive position. Managers are then faced with the problem of whether to provide information useful to investors in their assessment of the banks financial performance or to withhold the information that maximize the competitive advantage of the bank on the market. Financial reports have to include a clear and accurate report on all important accounting policies implemented by the bank. The accounting policies include principles, bases, conventions, rules and procedures the bank management adopted in composing and presenting financial reports. There is a variety of accounting policies in practice, even when they refer to the same subject. Consequently, an adequate selection and implementation of these policies should be made, to find out which of them are most appropriate in a concrete situation to interpret the banking institutions financial report and the results of its operations correcly. The disclosure of the important accounting policies implemented has to be a component part of financial reports and should, as a rule, be presented together, at the same place. Management Journal for Theory and Practice Management 2012/62 3. Special-purpose financial reports Creating a model of special-purpose accounting reports requires that the level of reporting as well as reporting frequency be defined. An autonomous department formed in the bank for the purpose of performing accounting financial tasks, reporting, planning and risk management generates the mentioned surveys and reports to meet a broad range of bank management needs, beggining with a timely alarm in case of irregularities in business doing, so that all the business activities should be oriented towards achieving the desired goals. In creating the model of accounting reports for the needs of the business activity control in supporting the bank management, the following has to be determined: 1. which level of reporting is required; 2. which is the optimum frequency of reporting; 3. which is the necessary information and reporting transparency. Regularly, in set time intervals, the accounting reports have to point out certain irregularities in business operations to the management, in order that corrective measures should be taken. It is very useful to compose parallel accounting synopses for a number of successive periods, which would allow for a more detailed financial analysis for the purpose of varied business decision making. Special purpose reports in the bank can be viewed through three segments: reports per segments, reports on bank exposure to risk and other reports. 3.1. Segment reporting Various reporting forms can be used in segment reporting incomes per countries, incomes per types of bank products, incomes per types of clients (see tables below) and the survey of banks key results and performance for the bank top management reports and other reports. Table 1. Investments into securities RSD thousand Securities and other traded placements Securities and other placements not listed on the Debt securities issued by the Government of the Republic Value correction Net state - 222,366 (22,435) 199,931 Securities that are kept to maturity day 2,071,862 Securities and other traded placements - Securities that are kept to maturity day 72,930 - (37,934) 2,033,928 309,225 (76,443) 232,782 - (4,330) 68,600 Management Journal for Theory and Practice Management 2012/62 Table 2. Segment reports on the bank group earned income per countries i In million euro Net income from interest Reservations on the basis of placement Net income from commissions and Net trading results General administration expenses Earnings insurance business Other results Income before tax Tax on profit Minority shareholders share Net income after deduction of minority h Average risk assets Average accrued capital Expense-income ratio Returns on assets on the basis of net profit h ld h Country 1 1-3 06 398.9 -80.0 246.2 63.9 -421.6 5.0 8.4 220.9 -49.3 -48.5 123.0 47,966.5 1,916.7 59.0% 25.7%        1-3 06 382.8 -80.4 229.4 51.8 -413.4 5.2 24.4 199.9 -43.2 -49.3 107.4 49,194.9 1,868.8 61.8% 23.0% Country 2 1-3 06 473.5 -43.0 192.2 55.2 -413.7 10.6 -2.7 272.0 -53.7 -29.7 188.6 32,958.1 2,006.5 56.6% 37.6% 1-3 06 304.2 -24.1 117.3 37.9 -260.0 2.5 -9.7 168.1 -38.6 -6.5 123.0 20,065.1 1,325.1 56.3% 37.1% In thousand dinars Companies Retail Public sector Other clients Current maturitiy of Other long-term Financial placements Total in dinars 4,992,353 1,228,458 - - 2,260,271 5,286,405 6,474,543 136,918 - (2,260,271) 271) 32,061 Table 3. Placements to clients  Short-term Long-term Total Short-term Long-term 10,278,758 7,703,001 136,918 - 1,884,711 840,588 - 2,016,481 2,514,313 3,075,170 77,185 - (2,016,481) Total 4,399,024 3,915,758 77,185 - 32,125 - 47,814 47,817 8,481,148 9,669,656 18,150,802 4,741,953 3,698,001 8,439,954 Table 4. Liabilities to clients  In thousand Compani Public Retail Foreign Other foreign Other Total in At sight RSD Shortterm RSD Longterm RSD Total At sight RSD RSD Shortterm RSD Longterm RSD 3,160,995 2,335,202 8,691 1,349,637 7,699 30,348 15,436 225,669 133,104 3,754 62,578 41,256 28,265 - - 5,558,784 1,313,255 65,383 1,603,571 140,803 34,102 35,691 1,009,055 2,287 523,609 356,000 125,072 - - 11,777 11,941 6,357 - - 434,372 4991,742 242,287 2,955,452 11,235 143,343 687,894 7,090,537 412,258 2,773,352 211,482 1,216,163 4,711 34,786 Total RSD 1,848,641 403,632 1,140,484 2,287 628,451 4,024,301 Management Journal for Theory and Practice Management 2012/62 The business results of a bank condensed from the balance sheet and income statement, can be presented as follows: Table 5. Banks business results Business results for the period Bank Average weighted active interest rate Average weighted passive interest rate Net interest margin Net earnings on interests / Operations expenses Net earnings on interests and compensations / Operations expenses Returns rate on total property Returns on assets rate Leverage 3.2. Risk management and reporting The risk management process in the bank is controlled at least once a year by the internal audit that checks the adequacy of the procedures as well as the banks compliance to the adopted procedures. The internal audit reports include the total credit exposure, the placement prognosis, deviations from the set limits, market risk measurement, liquidity ratio and risk profile changes. An efficient risk management requires that the following types of reports be composed [6] (group one): 1. Report on the bank solvency position; 2. Report on the macroeconomic factors affecting the bank solvency; 3. Report on the bank exposure to solvency risk; 4. Reports on the flow of total economy deposits and total retail deposits; 5. Report on the statutary reserves flow; 6. Reports on the flow of disposable credit lines from primarily foreign financial institutions; 7. Reports on the flow of other sources of financing. The second group of reports focuses upon the analysis of the following trends that make the bank sensitive to the effects of macroeconomic environment:  Trends of basic reference rates in the national milieu;  Trends of basic reference rates on the international financial market;  Trends of the National Bank reserves;  Trends of foreign exchange rates and currency rates of the countries of the region;  Trends of the repo securities purchased;  Inflation trends;  Trends in other macroeconomic indicators. The third group of reports is made up of the reports on the analysis of the banks exposure to liquidity risk, as well as the solvency position projections per different scenarios. Here a tabular report on the time discrepancies (gap) between assets and liabilities is created. The following reports are created for the needs of reporting on the bank exposure to interest risk: 1. Report on the present value of interest sensitive positions with the following structure: a) interest sensitive assets: b) interest sensitive liabilities; c) periodical discrepancies (gap) (difference between interest sensitive assets and interest sensitive liabilities). Management Journal for Theory and Practice Management 2012/62 The above listed reports are generally presented for the following time periods:  0-1 month;  1-3 months  3-5 months;  6 months to 1 year;  1-5 years;  Longer than 5 years;  Total. 2. Report on the change of the present value of interest sensitive positions assuming that interest rises by certain percentage. The structure of the contents of this report is identical to the above described report. 3. Report on the bank sensitivity to the change in interest rates (Repricing gap report) with the following elements: a) interest sensitive assets: b) interest sensitive liabilities; c) periodical discrepancies (gap); d) cummulative discrepancies (gap). The time groups the report refers to are the following: a) 0-1 month, b) 1-3 months, c) 3-6 months, d) 6 months to 1 year, e) 1-5 years, f) after 5 years, cummulatively sensitive assets/liabilities and g) non-interest sensitive assets/liabilities. 4. Report on bank sensitivity to change in interest rates the GAP sensitivity analysis. The above described report illustrates the implementation of the scenario analysis. It is of special importance that the number of granted and collected loans and the change in the bank placements should be analysed on a daily basis. For an adequate management of bank exposure to credit risk it is necessary that the solvency reports that are the basis for creditworthiness analysis be tracked since they contain the data on the state of the assets of the bank source. It is also necessary that credit exposure per different segments be monitored and reported on: 1) per geographic characteristics, 2) per sector characteristics, for both bank debtors and allied debtor groups. Bank management also requires that groups of reports are created that provide an insighat into the qualitative changes of the bank credit portfolio as well as into its scope. This group of reports includes four sets of reports [6], as follows:  The first set of reports that contains three groups of data: a) Bank exposure to rating groups; b) Respective reservations (according to IFRS or the national regulations); c) Coverage ratio that reveals the debt coverage with formed reservations.  The second set of reports focuses upon the identification and monitoring of the greatest bank exposures to segments, thereby gaining an insight into the dynamics per amounts and the quality of bank exposure to individual debtors.  The third set of reports is a survey on the state of bank exposure to clients that are defined as debtors, with a short description of activities undertaken to collect the receivables. This segment is further divided into two sub-segments, namely: a) for retail business and b) for business with economy.  The fourth set of reports focuses on the presentation of due receivables (currency payments) and the collection of matured receivables. The banks financial analysts analyse the trend of matured receivables which enables the bank to act timely against unfavourable tendencies. The report required for an adequate monitoring and control of the banks exposure to operational risk as well as for the presentation of the measurement results has to include the following: 1. Information on losses incurred through operational risk per business lines; 2. Assessment of a timely and earlywarning indicator of higher risks of losses; 3. Information on the changes in the banks exposure to certain risk groups; Management Journal for Theory and Practice Management 2012/62 4. Information on the assessment of the active control system quality; 5. Information on the relevant strategies of risk migration; 6. Information obtained on the basis of the applied trend analysis; 7. Comparison of the achieved operational risk profile and the axpectations of the bank management in this matter, etc. The report required for an adequate monitoring and control of the banks exposure to operational risk as well as for the presentation of the measurement results has to include the following:  Information on losses incurred through operational risk per business lines;  Assessment of a timely and earlywarning indicator of higher risks of losses;  Information on the changes in the banks exposure to certain risk groups;  Information on the assessment of the active control system quality;  Information on the relevant strategies of risk migration;  Information obtained on the basis of the applied trend analysis;  Comparison of the achieved operational risk profile and the axpectations of the bank management in this matter, etc. 3.3. Other reports The report on solvency is created for a shortest period of time, at least on the daily basis, and then on the weekly, two-week, and monthly bases, in order that money flows in the bank should be adequately managed. Defining the daily cash liquidity, i.e. the level of cash that can meet the demand for cash is in the domain of operations planning. A broad range of information potential offered by the accounting in meeting the bank management needs can be viewed through the following reports and surveys, of either short-term or long-term character, focused upon the bank as a whole or on individual segments or banks: Table 6. Information potential of accounting and operational evidence REPORTS (annual, semi-annual, quarterly, or monthly), DAILY REPORTS MONTHLY SURVEYS SURVEYS OTHER Report on profits (annual, semi-annual, quarterly, or monthly), Report on the rise in the bank equity capital Daily report on the account of foreign currency on the accounts abroad Daily report on payments abroad Report on the fall in the bank equity capital Daily report on payments abroad A monthly review of the daily account of total deposits per all categories Daily report on operational account of effective foreign currency Survey of deposits per all categories for the biggest depositors at the end of each month Survey of liabilities on the basis of capital expenses Survey of classification of ballance of assets and offbalance items according to the collection level and the amount of the special bank reserve Various statements Credit negotiability analysis Foreign currency subbalance Survey of the bank share in the capital of another legal entity Balance sheet extract cash assets Monthly survey of changes in the structure of assets Monthly survey of changes in the structure of assets Monthly survey of daily account of total deposits per all categories Monthly survey of other expenses per organizational segments of the bank Report on monthly analysis on income per product Daily report on the scope of foreign currency purchase and sale Survey of the daily account of total deposits per all categories covered in one month Balance sheet extract loans  Management Journal for Theory and Practice Management 2012/62 REPORTS (annual, semi-annual, quarterly, or monthly), Report on commission per month Report on profit distribution per month Report on interests and compensations per month Report on currency structure of statutary reserve Report on currency structure of assets and liabilities Report on cash holdings and cheques Review of deposits for the bank's ten biggest depositors Report on foreign exchange risk indicators Report on the bank's key clients Report on the overall purchase and sale of foreign currency and effective foreign currency from residents and nonresidents Report on salaries and bonuses Credit report Risk management report i l Report on the rise and fall in the bank equity Report on bank's issues completed Report on the shareholders with over 10% b k Report on dinar solvency i l Report on foreign currency solvency Report on analysis of income per / Report on salaries and bonuses d i  DAILY REPORTS MONTHLY SURVEYS SURVEYS OTHER           Survey of foreign currency positions on the foreign accounts and with the National Bank of Serbia Survey of calculated and collected interests and compensations per organizational units of the bank Balance sheet extract cash deposits Balance sheet extract off-balance evidence Survey of tangible and intangible expenses Survey of contentious debts the bank holds against clients and depositors Survey of other incomes per categories for organizational units of the bank Survey of calculated expenses and compensations per organizational units of the bank Survey of operational expenses for interests and compensations per organizational units of the bank Survey of significant changes in the stucture of other assets Survey of significant changes in the stucture of other liabilities Survey of daily inflow and outflow on the basis of foreign currency savings Survey of interest rates on an annual level Survey of liabilities on the basis of capital expenditures Survey of new savings Survey of tax on financial transactions Survey of significant changes in fixed assets Survey of reservations for prospective losses Survey of deposits per all categories for the biggest bank depositors Survey of assets classification Survey of liabilities on the basis of capital expenditures                    Management Journal for Theory and Practice Management 2012/62 REPORTS (annual, semi-annual, quarterly, or monthly), Report on deposits Report on foreign currency adjustment Report on risk profile Report on bank's needs for capital Report on the development of new jobs Report on money flows Report on new clients and depositors per Report on active clients and depositors and Report on the number of new clients per product Report on the bank customers' loyalty Report on profit centres performance Report on investment centres performance i i Report on consolidated clients Report on changes in capital Report on time compliance between assets and liabilities Report on poor bank Report on foreign currency and other risks for the bank Credit report DAILY REPORTS MONTHLY SURVEYS SURVEYS OTHER                                    According to the decision of the National Bank of Serbia [12], banks are obligated to create the following reports: 1. Survey of the banks biggest shareholders; 2. Survey of the banks investment into entities that are not financial sector entities, as well as into banks fixed assets; 3. Survey of the banks investments into entities in the financial sector; 4. The banks over-exposure to the exposure entities; 5. Overexposure to the group of allied entities, 6. Survey of the banks exposure to the entities related with the bank; 7. Reports on the classification of balance assets and the banks off-balance items; 8. Report on the structure of the banks impaired loans; 9. Monthly report on the bank solvency indicator; 10. Monthly report on the bank cash flows; 11. Monthly report on the overall loans and placamants; 12. Banks balance sheet; Management Journal for Theory and Practice Management 2012/62 13. Banks income statement; 14. Basic information on the bank; 15. Report on the accepted an approved applications for loans, as well as on prolonged or prematurely repaid loans; 16. Survey of the banks biggest depositors; 17. Daily report on the bank solvency indicator; 18. Daily report on the bank foreign currency risk indicator; 19. Report on granted and placed loans in deposits; 20. Report on daily account on foreign currency accounts in national and foreign banks; 21. Report on new issues of bank shares; 22. Report on the rise and fall in the bank stock. According to the decision on bank reporting [12], the bank is also obligated to create a report on restructured receivables as well as reports on the structure of the bank impaired credits. On the basis of the stated proprietary status a number of detailed information can generally be obtained that closely specify, referring to the assessment of the amount of receivables and the source these come from, the liabilities according to their amounts, as well as on the basis of the creditors, that define the availability of financial sources large enough to cover the deposits draw as well as other financial liabilities as these mature (solvency maintenance), to allow for an insight into solvency (surplus of assets over liabilities and the maturity of bank capital). Naturally, other relations in the proprietary situation are also relevant, such as the ratios in the structure of assets and sources, the share of long-term or short-term capital in the overall capital, coverage of working assets by short-term bonds, etc. A statistical annex is created for the needs of external users, and so are other financial reports that include certain accounting information. These are:  reports;  prospecti;  announcements;  managerial forecasts [5]. Information of vital importance for strategic decision making is also the analysis of the bank position related to other participants on the market on which the bank operates. By monitoring the trends and dynamics in the market position, it is possible to identify the activities the implementation of which is expected to allow for a satisfactory share of the bank on a given market. The analysis primarily uses the formal statistical data issued by: a) the National Bank and b) the Association of Serbian Banks, as formal financial reports, i.e., the balances of a respective bank. Table 8. Competitiveness analysis for banks Management Journal for Theory and Practice Management 2012/62 One way to gather information on competition [11],[13] and their business operations is the interaction with mutual business partners. This refers to the data related to the competitions costs and prices. It is also necessary that the competitors activities on the market should be monitored, as well as their rating in the reports of various rating agencies (see table 2). The time period in which competition acts is also important. Whether the price of the banking products is reduced for a short-term or for a long-term period is also important. In the former case, the strategy can be to capture a larger market share, while in the latter case the strategy of expense leadership is more probable. In the competition analysis, banks mostly focus upon financial institutions that produce similar financial products or even do business on the same market. Table 9. Comparison between the banking company rating with the competition according to the rating agencies S&P, Moodys and Fitch Banking companies country A B C D E F G H I J              S & P Š10Ë ST Prospects Latest report LT negative 17/10/2009 Aa3 na na negative 25/11/2008 LT A na A+ A-1 na A1 na na AA A-1+ negative A+ AA AA A A-1 A-1+ A-1+ A-1 negative stable 13/02/2008 negative 15/02/2008 negative 04/11/2008 AA A-1+ negative na A+ na A-1 30/10/200 na na negative 20/12/2007 AA A-1+ stable na A+ negativne 06/10/2008 AA A-1+ negative 10/12/2008 A A-1 stable 14/12/2007 AA A-1+ A A-1 na na na na Moody's Š9Ë ST P-1 na P-1 P-1 P-1 P-1 P-1 P-1 P-1 P-1 P-1 P-1 P-1 P-1 P-1 P-1 P-1 Prospects negative na negative na na stable stable stable negative na stable stable stable stable stable na na Latest report 11/12/200 na 23/02/200 Na Na 15/04/200 21/01/200 06/09/200  09/12/200 na 30/12/200 na 07/10/200 11/11/200 na na na LT A na A+ A+ A+ AA AA A AA na AA AA A+ AA A AA A+ na Aa2 Aa2 A1 Aa1 Aa2 Aa3 Aa1 Aa3 Aa2 Aa2 Aa3 Aa3 A2 Aa1 Aa3 Fitch Š8Ë ST Prospects Latest report  F1 na F1 F1+ F1 F-1+ F1+ F1 F1+ na F1+ F1+ F1 F1+ F1 F1+ F-1 stable 30/10/2008 na negative na na 02/12/2008 24/10/2008 na . na positive 27/06/2008 stable 24/01/2008 04/11/2008 12/09/2007 negative 12/10/2007 negative stable na stable negative negative negative na na na na . . na na na 02/10/2008 27/10/2008 *n.a. indicates that data are not available The analysis of trends of the total number of clients require that banks create reports of the following contents:  business segment (e.g., individual clients);  number of clients;  number of departed clients;  number of active clients;  number of inactive clients. The above listed data are tracked on the monthly basis over the year. The tracking of the bank clients trend as well as tracking of the extent to which cross-selling is realized is understood as the commercial indicators analysis. A specially important role in the analysis is that of prospective bank clients identification for the purpose of which the reports of the following contents are created:  With a current account (without credits);  Service status (active, inactive); Management Journal for Theory and Practice Management 2012/62  Client status, data on clients (physical or legal entities);  Client types (client with a current account, client with other products without a current account, client with a credit and client (clients) who left the bank, other clients);  Numerical amounts for crossed data on different features. Sales managers find that the report known as cross-selling is of special usability importance. The purpose of this report is to present an average number of bank products/distribution channels used by the bank client. To create this report, the following indicators are used [6]:  Number of clients that prefer a certain group of products / Total number of clients;  Number of clients that use a certain distribution channel / Total number of clients. The product groups are the following:  Health care and property insurance;  Life insurance and pension funds;  Investment funds;  Shares and bonds;  Bank bonds;  Current accounts;  Pre-paid cards;  Debit cards;  Standing order;  Salaries and pensions;  Fixed term deposit account;  Overdraft;  Credit cards;  Consumer credits;  Housing credits. The distribution channels are the following:  Internet banking;  Telephone banking;  ATM;  SMS banking. In addition, the above mentioned report includes the following indicators:  The percentage of customers versus the score e.g., 10% clients have two products, 15% clients have three products, etc;  The percentage of clients that use a certain distribution channel e.g., 5% clients use one distribution channel, 17% use two channels, etc;  An average number of products used by the client in accordance with defined client groups;  An average number of distribution channels used by the client in accordance with defined client groups. For the needs of the bank management, and especially of the managing board, reports are created on the quarterly trends in the scope and in the quality of the bank portfolio with a short explanation of the tendencies observed. Management Journal for Theory and Practice Management 2012/62 Conslusion Over the last decades, financial institutions have invested substantial funds into the development of information solutions that are expected to ensure an adequate operation of the management accounting and reporting system. As a result, a broad range of available information solutions have developed on the market: data warehouses for operational information and information on clients, sophisticated solutions for measuring profitability, balanced scorecard solutions, etc. The management of a modern banking company is increasingly oriented to implementing the accounting information system for the purpose of an efficient and effective management of the company. The realization of the key bank performance profitability, solvency and liquidity by the bank management cannot be imagined without adequate accounting (financial) information. A better accounting information system is often mentioned as one of the key items in aleviating the difficulties in banking operations, i.e., bank resistance to crises. Poor assessments as a result of an inadequate accounting information system turn into inadequate business decisions and inefficient investments. The result is the loss in business, even in banking. The mechanisms used to protect banks from bad placements consist of right accounting information on business and financial flows. The managerial competence supported by an adequate accounting information system is of paramount importance in bank management. The goal of general financial reports is to provide the financial information to the user for the purpose of managing, i.e., making economy decisions, measuring and forecasting the bank performance (profitability, solvency and liquidity). In addition, the financial information has to refer to property, assets and liabilities to the assets sources, as the effects of transactions which change assets and liabilities in accordance with the bank sources. In other words, accounting reporting is reporting on proprietary, financial and earning position of banks, which is the basis for the assessment of the work of management bodies in the banks and their responsibility for the resources they are in charge of. Specific financial reports depend on concrete needs of the bank that designes them accordingly. REFERENCE [1] Albertazzi, U., Gambacorta, L., 2009. Bank profitability and the business cycle, Journal of financial Stability 5, 393-409. [2] Altamuro, J., Beatty, A., 2010. How does internal control regulation affect financial reporting? Journal of Accounting and Economics 49, 58-74. [3] Cabedo, J. D., Tirado M. J., 2004. The disclosure of risk in financial statements, Accounting Forum 28, 181-200. [4] Calmes, C., Liu, Y., 2009. Financial structure change and banking income: A Canada-U.S. comparison, Journal of International Financial Markets, Institutions & Money 19, 128-139. [5] Delancy, P. R. i dr., (1990), Interpretation and Application, GAAP, John Wiley and Sons New York, p. 19. [6] Đurić, D., (2011), Upravljački sistem informisanja za banke, magistarska teza, Fakultet organizacionih nauka, Beograd. [7] Glen, J., Mondragon-Velez, C., 2011. Business cycle effects on commercial bank loan portofilio performanse in developing economies, Review of Development Finance 1, 150-165. [8] http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp accessed on [17.03.2011. 17.30. h] [9] http://www.moodys.com/ accessed on [21.11.2011. 16.30. h] [10] http://www.standardandpoors.com/ratings/en/us/ accessed on [15.01.2012. 09.30. h] [11] Knežević, S., Jovanović, M., Dmitrović,, V., (2011), Procene učinka konkurenata zasnovane na objavljenim finansijskim izveštajima i strategijsko poslovno odlučivanje XVI Internacionalni naučni skup: Strategijski menadžment i sistem, podrške odlučivanja u strategijskom menadžmentu Subotica Palić, 19. maj, Abstract proceedings, pp. 49-50. [12] Odluka o izveštavanju banaka, Službeni glasnik RS, br. 45/2011. [13] Shen, C., Huang, Y., Hasan, I., 2011. Asymmetric benchmarking in bank credit rating, Journal of International Financial Markets, Institutions & Money 22, 171-193. [14] Zakon o računovodstvu i reviziji, Službeni glasnik RS, no. 46/06 and 111/09. Receieved: 01. 2012. Accepted: 03. 2012. Management Journal for Theory and Practice Management 2012/62 About the Author Snežana Knežević University of Belgrade, Faculty of Organizational Sciences e-mail: knezevic.snezana@fon.bg.ac.rs Snežana Knežević was born in Pančevo, where she finished School of Economics. Graduated from the Faculty of Economics in Belgrade where she also got her MSc degree. She got her PhD degree at the Faculty of Organizational Sciences in Belgrade. Area of interest: Finance, Accounting and Environmental protection. Fluent in French and English. Has published several monographs and papers of scientific and professional orientation in the country and abroad. Currently working at the Faculty of Organizational Sciences in Belgrade, Department of Financial Management. Draginja Đurić Banca Intesa Draginja Djurić was born in Sinj. Graduated from the Faculty of Economics in Belgrade, and got her MSc degree at the Faculty of Organizational Sciences in Belgrade. Area of interest: Finance in Banking and Management Accounting in Banks. Has several papers published in journals of national importance. Currently working in Banking sector. She has received the award Banker of the Decade and many other awards. Chairman of the Executive Board of Banca Intesa. Veljko Dmitrović University of Belgrade, Faculty of Organizational Sciences Veljko Dmitrović was born in Subotica, where he finished High school. He graduated at the Faculty of Economics (University of Novi Sad). Upon completion of five years in practice, he took the job at the Faculty of Organizational Sciences (University of Belgrade), where he still works with the title of Teaching Assistant at the Department of Financial Management. He holds a Master degree (Financial Management module) at the Faculty of Organisational Sciences in Belgrade, and Master degree (Marketing) at the Faculty of Economics in Subotica. His scientific interests are Accounting and Finance. He has over thirty papers published in scientific journals and at the conferences of international and national importance as author or coauthor. He speaks English fluently, and uses German and Italian too. Management Journal for Theory and Practice Management 2012/62 Marko Mihić1, Aleksandar Vučković1, Miodrag Vučković1 1University of Belgrade, Faculty of Organizational Sciences Benefits Management in Energy Efficiency Projects in Serbian Public Buildings UDC: 005.8(497.11) ; 620.92:725(497.11) ; 351.824.11:620.9(497.11) DOI: 10.7595/management.fon.2012.0003 Implementation of energy efficiency projects in public buildings can contribute to achieving many benefits for the community. Some of these benefits are energy savings, greenhouse gas reduction, comfort improvement, etc. The implementation of energy efficiency measures in public buildings creates the opportunities for benefits achievement, but in order to actually achieve them, it is necessary that the project management process be conducted together with the process of benefits management. The thesis intended to be proven in this paper is that energy efficiency projects management in public buildings which is integrated with benefits management, guarantees the achievement of maximum benefits for the community. This paper focuses on the description of phases and activities of an integrated model of project management and benefits management. The aforementioned model is described taking into consideration the energy efficiency situation in Serbia as well as project management practices in the respective area. Key words: energy efficiency, project management, benefits management, public buildings, community. 1. Introduction Global problems, such as rapid depletion of nonrenewable energy sources and uncontrolled emission of greenhouse gas are some of the major reasons for the generation of economic crisis in the world. When it comes to energy consumption, energy-poor countries, such as Serbia, in addition to the global, are faced with a number of local issues. In 2009, Serbia spent about 2.6 billion U.S. dollars for energy imports, which was then 16.9% of total imports [1]. Most of the funds were spent to import oil and gas, because 80% of the demand for oil and about 90% of demand for gas are supplied from imports [2]. Energy consumption in buildings is among the largest in Europe, which significantly affects the efficiency of the economy and living standard. For example, energy consumption in public buildings in Serbia is over 200kWh/m2, while the consumption in Sweden, with a colder climate, is much lower and is 60-80kWh/m2 [3]. In addition to the problem of excessive energy consumption, considerable attention should be paid to the high level of air pollution, which is particularly acute in large cities. The cause of this problem, among other things, are the emissions of harmful gases and particles, which is the result of energy consumption in public buildings. An unfavorable energy and environmental situation in Serbia is partially possible to repair using measures of energy efficiency in public buildings. The measures for improving energy efficiency represent the procedures which increase the degree of efficiency and reduce losses during the operation of electrical devices and hot water installations, but also prevent excessive heat swelling through the exterior walls and holes in the building. Opportunities for improving energy efficiency in public buildings in Serbia are great. Public buildings occupy an area of over 40 million square meters, but many of them are below the energy efficiency standards [4]. The benefits of applying measures of energy efficiency can be enjoyed by both the employees in public buildings and the community as a whole. 1 The paper brings the results of the authors research within the project no. 179081, financed by the Ministry of Education and Science of the Republic of Serbia. Management Journal for Theory and Practice Management 2012/62 Energy efficiency projects in public buildings are mainly, directly or indirectly, financed with taxpayers money. That is why the realization of the projects of this type should be coordinated in order to achieve the maximum benefit for the community. However, the realization of projects does not mean that benefits will automatically be realized in the proper manner. To achieve the benefits of energy efficiency projects in public buildings, it is necessary to implement the process of benefit management, before, during and after the project realization. This process should be an integral part of project management process, because it is in this way that the results of the project will contribute to the community development. 2. Energy efficiency projects in public buildings and benefits management An energy efficiency project in buildings could be defined as a complex, unique venture of implementing energy efficiency measures in the given building, which is realized within the stipulated time and the projected costs, in order to achieve energy savings retaining the same or better living conditions for the users of the building [5]. Energy efficiency projects belong to the group of investment projects. The realization of energy efficiency projects in public buildings is not simple. The implementation of energy efficiency measures can be complicated, lengthy and require significant financial resources. Also, according to [6], the projects in the public sector are more complex than the projects in the private sector due to numerous limitations and difficulties. The objectives of each project may be general or specific [7]. The general objectives of energy efficiency project in public buildings are an expression of contribution of the project to the community development, primarily in the areas of improving the countrys energy balance, environmental protection and higher level of social welfare. Specific objectives are primarily related to the realization of the project within the given constraints: duration, resources, costs and quality of energy efficiency measures. The recent history of the realization of energy efficiency projects in Serbia dates back to the year 2002, when the Serbian Agency for energy efficiency was established. Energy efficiency projects in public buildings in Serbia in the period since 2002 till today have been carried out by other state, provincial and municipal institutions, besides the Agency. The funding for these projects has usually been provided from the budget of the Republic of Serbia, provincial and municipal budgets and international credits and donations. Investors are trying to allocate these funds to dozens (or hundreds) of projects spread across the country. This method enables a large number of users of public buildings and citizens to enjoy the benefits of energy efficiency projects. The mentioned projects have been organized into portfolios [8]. Project management portfolio is the discipline of project management that includes knowledge, skills, tools and techniques for managing an appropriate set of projects which is aligned with the strategy and objectives of the organization [9]. The effectiveness of the energy efficiency projects portfolio in public buildings represents the degree to which the results of the portfolio correspond to the objectives of users and employees in both public buildings and the community. The mentioned effectiveness depends on the choice of public buildings where the projects will be realized as well as on the choice of energy efficiency measures to be used in these projects. Considering that investors have limited resources, their interest is that the projects they invest in contribute in the best way to meeting the needs of users, employees and the community. In this context, it is necessary that the benefits of the projects should be properly assessed and, therefore, the projects that will ensure the achievement of maximum benefit should be selected and conducted. The realization of energy efficiency projects in public buildings provides an opportunity to achieve savings in energy consumption. However, whether savings will be actually realized, largely depends on user behavior in the period after the implementation of energy efficiency measures. These measures can reduce energy losses and improve the efficiency of the installation, which will in turn result in lower energy prices. In this situation, consumers are often motivated to increase rather than reduce consumption. In this way only a part of the planned savings is realized. This phenomenon is called the rebound effect [10]. The extreme form of rebound effect is called Jevons paradox. This is a phenomenon when the level of consumption after the application of energy efficiency measures exceeded the level before the application [11]. The increase in the energy consumption in the period after the application of measures is justified because users tend to use a positive difference in the price of energy to raise the level of comfort, the purchase of new or better use of existing electrical devices (if the object of application of the measures was saving energy) [11]. However, it should be noted that the reasons for an increase in consumption are not always rational. Space heating above the optimal temperature, leaving the windows open in the rooms that are heated / cooled for Management Journal for Theory and Practice Management 2012/62 too long or failing to switch off the lights in empty rooms are just some examples of poor energy management, which may arise as a result of lowering energy costs and insufficiently developed awareness of social objectives [12]. In the energy efficiency projects in commercial and public buildings in Norway at the end of the last century, due to the rebound effect, 90% of planned energy savings was achieved [13]. Considering that substantial resources were invested in the realization of these projects and that significant effects were expected to be gained, 10% of unrealized savings can represent the amount of several million euro of losses in the period of the exploitation of the investment. Serbia has not yet done any research on the impacts of the rebound effect in the energy efficiency projects in public buildings. However, the Norwegian experience can clearly prove that in the projects in this country appropriate measures should be taken to ensure the full realization of planned benefits. In many areas, the achievement of specific objectives of the project results into the realization of common objectives. However, in the energy efficiency projects in public buildings, it may not be the case. It can be said that in some projects of this type there is a gap between the achievement of specific objectives and the goals, which must be overcome by appropriate activities. The management discipline that deals with defining, evaluating and providing the expected benefits is called benefits management [14]. Besides the efforts aimed at achieving the expected benefits, the benefits management process attempts to identify and ensure the realization of those benefits that were not previously in the plan of the project. The benefits management process should be an integral part of project management or of the portfolio of projects. This process allows for the project team to understand the reasons why the project is implemented, as well as to understand the importance of the project for achieving the overall goals of the organization or community. An integrated model of the project / portfolio management and benefits management in the case of energy efficiency projects in public buildings is shown in picture 1. Picture 1: Model of benefits management of energy efficiency projects in public buildings Management Journal for Theory and Practice Management 2012/62 Benefits management on the project should be effected in the same way as that in which it works with all nine knowledge areas of the project management concept. These areas include the management of integration, scope, time, costs, quality, human resources, communication, risk and procurement for the project [15]. Somehow, the benefits should be seen as a tenth area of knowledge which should be managed in the project. In the presented model the direct impact of the activities of benefits management upon the course and outcome of the project phases can be seen. The activity of post project providing achievement of planned benefits is, unlike the others, carried out after the closure of the project, because the course and the outcome depend, to some extent, on the project results. The shown model will be described in more detail hereonafter. 3. Adoption of benefits management strategy Awareness of potential benefits represents the initial phase of the project. In this phase, users become aware of energy wastage, as well as of the situation in which it would be preferable to establish the energy system of public building. The project team, based on a defined preferable state of the energy system, defines a few project goals. The first step in achieving these goals is adopting benefits management strategy at the level of public building, which will represent a framework for improving the energy system. The benefits management strategy in energy efficiency projects in public buildings represents the direction in the creating of benefits process before, during and after the implementation of projects of a given type, and in the context of fulfilling general social objectives related to economic development, environmental protection and achieving higher level of social welfare. This strategy describes how and to what extent benefits will be identified and quantified, which funds for its implementation will be used and who is responsible for the implementation [14]. In accordance with the strategic aspects of project management [16], it is important that the benefits management strategy corresponds with the national and international strategies and objectives in the areas of energy and ecology, as well as with other common social objectives. 4. Data collection on socio-economic characteristics of projects A correct analysis of the characteristics of the structure and energy flows can help determine the deficiencies in the energy system and recommend appropriate measures to improve energy efficiency. By examining the physical characteristics of the building it is possible to determine the level of energy losses and the efficiency of energy installations. Based on the collected data, the indicators of energy performance are calculated, which represent the quantitative expression of the state of building energy systems [17]. Through a comparison of determined indicator values with reference values, it is possible to estimate potential energy savings, and also the possibility of achieving other benefits. However, the total level of potential benefits depends on other factors, primarily on the narrower and wider socio-economic context of the project realization. The analysis of a broader socio-economic context of energy efficiency projects in public buildings should include the information on the gross domestic product in the municipality, region or country, environment, transport and energy infrastructure, the number and structure of buildings, the unemployment rate, the demographic situation, the average salaries, the educational structure, energy consumption per unit, natural resources, national and international regulations in the field of energy and perspectives for further economic development [5]. To analyze the narrower context of the project, it is necessary to collect information, such as: the use to which the building is put, the number and behavior of users and employees in the building, the use of the existing knowledge in the project, the readiness to implement the project, the complementarity with other projects, developing human resources in the local community through participation in the project, etc. The possibility of complete consideration of future benefits and costs significantly relies on the accuracy of the estimation of all economic, environmental and social factors that affect the project. Therefore, the information is used as the basis for the identification and quantification of potential benefits. Management Journal for Theory and Practice Management 2012/62 5. Identification and quantification of benefits and project assessment In the preparation of the realization of energy efficiency projects in the public building, the development of feasibility analysis is one of the most important phases. Feasibility analysis analyzes and develops technical, energy, economic, environmental, social, political and other conditions relevant to the assessment of investing resources from the aspects of an investor and the community. Based on this elaborate, a decision is made on whether the realization of a project is justified, [18]. Also, comparing the results of feasibility analysis of several individual projects, it is possible to select some of the best and create an optimum portfolio. As mentioned before, energy efficiency projects in public buildings are often part of a set of tens or hundreds complementary projects aimed to achieve a maximum benefit for the community. In this context, in a portfolio of energy efficiency it is necessary to include those projects that will best contribute to social development. Energy efficiency projects in public buildings may affect the development of the broader community - a city, region or country. The method which is usually implemented in the evaluation of projects of great social importance is the Cost-Benefit analysis. It is a method whose implementation starts from the fact that we should identify and quantify all the costs and benefits, no matter whether they are economic or noneconomic in nature [19]. With an adequate detection and quantification of costs and benefits, the investor can evaluate the contribution of individual projects to achieving overall objectives and on such a basis the investor can select projects that will be part of the portfolio. It is necessary that the Cost-Benefit Analysis include all the benefits of the project, even those intangible. Benefits such as satisfaction with comfort in the building are quantified by method of added value for the user (consumer surplus) [20]. This method is based on the theory of utility. According to this theory, the utility indicates satisfaction, subjective pleasure or benefit that user has consuming some good or service [21]. Users, depending on the situation in which they are, have different subjective feelings about the same tangible or intangible goods. If users do not have certain tangible or intangible goods, they can be asked about how much they are willing to pay to possess it (willingness to pay - WTP) [20]. In the case of energy efficiency projects in public buildings, the WTP indicates the amount of funds that the users of building are willing to allocate to solve the problem of inadequate conditions for living and working in the building [22]. The sum of individual WTP values per user makes a total WTP for the entire building. The amount of total WTP often deviates from the market value of energy efficiency measures. This deviation can be positive or negative. If it is a negative deviation or if the market value is greater than the total WTP, then according to this criterion it is not justified to realize the project. When the total WTP is higher than market value, a positive deviation in this case represents an additional value for users and the size of the intangible benefits that users can enjoy after project realization [20]. The benefits that energy efficiency projects in public buildings earns to the community can be classified into the following categories: Economic benefits; Environmental benefits; The benefits that are related to improving the conditions of living and working in buildings. The economic benefits make the biggest part of the total benefits of energy efficiency projects in public buildings. For this reason, all the attention is exclusively paid to this type of benefit, in the feasibility analysis. The economic benefits are realized in the form of cash value savings in energy consumption in projects of this type. These values can be achieved when the difference between the current and future, estimated (less) energy consumption is multiplied with energy prices. The savings in energy consumption provide an opportunity to improve the energy balance of the country and reduce imports or increase exports of individual energy sources. In Serbia, a huge part of energy is produced from nonrenewable sources, which results into large emissions of greenhouse gas and other gases and particles that are harmful to human health and the ecosystem. It can be expected that due to reduced energy consumption by applying energy efficiency measures, it comes to reducing pollution. Quantified monetarily environmental benefits in the energy efficiency projects in public buildings are calculated when the difference between the current and future, estimated (less) emissions of harmful gas is multiplied with the price of gas in the world market. Harmful gas is traded on special Management Journal for Theory and Practice Management 2012/62 exchanges that exist around the world [23]. The benefits related to improving the conditions of living and working in the building include: preventing the causes of health problems, improving productivity of employees and a higher degree of comfort. Low temperature, humidity and draft in the public building are often the cause of a number of health problems for users and employees. Creating optimal conditions for living and working results into a reduced the number of patients, and therefore the savings in state expenditures for health. Applying energy efficiency measures leads to the improvement of working conditions, and therefore to an increase in productivity, which can be measured and financially expressed by standard methods [24]. Satisfaction with living and working conditions in the building is quantified by method of added value for the user, which was previously described. In the energy efficiency projects in public buildings there are benefits that are very important, but difficult to quantify. By meeting international obligations as regards the implementation of directives and protocols related to energy efficiency, the countries that aspire to Euro-integrations become closer to the EU membership. Also, a country that dedicates considerable attention to energy efficiency proves that its citizens have developed their awareness of sustainable development, and therefore, enjoys a higher reputation in the world. Energy efficiency projects in public buildings may have an impact on raising awareness of rational consumption of energy and environmental protection. Alongside the rise in the awareness of energy efficiency, grows the number of realized projects of this type, which create the new benefits. All collected information about the expected benefits need to be documented. For this purpose a benefit profile is created for each benefit. It is a document that shows all relevant information for achieving certain benefits. A benefit profile should contain the following information: category and description of benefit, part of the organization or environment that will be affected by the benefit, relationship with other benefits, a dynamic plan of benefit realization, activities, responsibilities, risks, stakeholders, indicators for monitoring benefit realization, the way and frequency of reporting in the process of benefit realization, etc. [14]. The Cost-benefit analysis should cover the costs that arise in connection with the project. The realization of energy efficiency projects in the public building requires significant financial resources. The amount of those resources primarily depends on the type and number of energy efficiency measures that are used and also depends on the characteristics of building, climatic conditions, available energy infrastructure, etc. In most of energy efficiency projects, there are different types of costs that are related to: Analysis of the characteristics of public buildings; Preparation and development of project documentation; Provision of approvals and permits; Supply of material, equipment and human resources; Provision of equipment, material, device, installation, work, etc; Rates on taken loans for the project realization; Promotional activities for raising public awareness about energy efficiency; Maintaining in the period of project exploitation; Certification of the energy system of public building etc. In the feasibility analysis, assessment of projects is carried out by appropriate indicators. There are different types of indicators, including financial, economic, social, technical indicators, etc. For the needs of projects evaluation from the aspect of community in energy efficiency projects in public buildings it is necessary to use indicators of cost-benefit analysis. The basis of these indicators is the comparison between predicted benefits and costs. The portfolio of energy efficiency in public buildings includes those projects where the benefits outweigh the costs to a greater extent than it is the case with other projects. As mentioned above, it is difficult or impossible to quantify some benefits, and therefore those benefits cannot be included in the process of calculating the indicators. In spite of that, in deciding on the selection of projects to be entered into the portfolio, it is possible to take into account the immeasurable benefits. In this case, it is necessary to rely on the subjective assessment of decision makers about the importance of these benefits for achieving common social objectives. Management Journal for Theory and Practice Management 2012/62 6. Directing the project activities towards achieving maximum benefit Directing the project activities towards achieving maximum benefit requires that the project team should focus on achieving overall objectives during the project realization. The selection of contractors to improve energy efficiency in public buildings is carried out through a restrictive procedure of public supply. The general steps in this process are the following: defining the conditions for bidders, advertising and collecting the bids and finally the selection of the best bidder. The project team should prescribe the conditions for bidders taking into account the predicted benefits of the project. These conditions are primarily related to the quality of construction works in terms of future realization of energy savings, of reducing the emissions of harmful gases and improving conditions for living and working in the building. Also important conditions are the amount of the implementation measures costs and project exploitation. The project team can define additional conditions for bidders, but the previously mentioned conditions are considered as most important for the realization of predicted benefits. After the collection of bids, and according to defined conditions, the project team selects bidder / s who can best contribute to the achievement of specific and general objectives of the project. A phase in the project realization is related to the direct implementation of energy efficiency measures in the given public building. The activities in the implementation measures are meant to contribute to achievement of predicted benefits in the long-term. To make a stronger connection between these activities and the benefits, it is necessary to use the benefit matrix. This matrix connects activities of the project realization with the appropriate benefits that should be achieved through these activities [25]. In that way, in the energy efficiency projects in public buildings it is possible to ensure the management of implementation of measures in line with the predicted benefits for the community. The control phase is related to the monitoring of project realization and periodical project management reporting about the work progress. The project management receives reports from the field about time, costs, resources and quality of implementation measures. The information presented in the reports will be considered in the context of predicted benefits, and an estimate will be made on whether the current realization guarantees the achievement of specific and general objectives of the project. 7. Comparison of predicted and applied measures for the benefits realization The evaluation and closure is the last phase of the project. In this phase it is necessary to determine to what extent the specific project objectives are achieved. The evaluation of the project includes the analysis of the quality of the applied energy efficiency measures. The quality of the evaluation process can be defined as the extent to which the contractor complies to contractual obligations to improve the energy efficiency in the public building. By recalculating the energy performance indicators and through the survey among the users and the staff it is possible to quantitatively compare the planned and the achieved results of the project. Based on the collected information, it is possible to perform a new assessment of energy savings and other benefits. By comparing the projected and actual quality of the implemented measures, it is possible to notice a need for a possible correction of the expected benefits. Evaluation results are collected in a special evaluation report, which serves as a platform of providing post-project benefits. Evaluation reports of individual projects are collected into a unique evaluation report of the entire portfolio. 8. Post-project providing of planned benefits realization A successful implementation of the project, i.e. achievement of specific project objectives, creates the conditions for achieving common objectives. Unlike the costs, which are tangible and direct, the benefits are achieved only after the realization. As mentioned before, the rebound effect and the increase in the irrational energy consumption after project implementation can lead to a failure to achieve the benefits to the extent to which they are anticipated. To avoid this, it is necessary to implement the process of post-project realization of planned benefits. This process is focused on establishing an efficient system of energy management in the organization, which, in the period after the implementation, will guarantee the achievement of overall project objectives. Management Journal for Theory and Practice Management 2012/62 Developed countries apply regulations on energy certification of public buildings, which confirms that the technical characteristics of certain public building meet the specified conditions of energy efficiency. However, in addition to the technical characteristics of the building, it is necessary to certify an associated organization. This would allow for an effective and efficient management of energy systems in the public building. In June 2011, the International Organization for Standardization published a standard related to energy management system, the ISO 50001:2011 standard, Energy Management Systems - Requirements with guidance for use [17]. The requirements of this standard can be successfully applied in the process of ensuring the realization of planned benefits after the implementation of energy efficiency in public buildings. The ISO 50001:2011standard is an international standard that provides guidelines for the implementation of strategies for improving energy efficiency, cost reduction and continuous improvement of energy performance of all types of organizations. The standard assumes that the energy management system can integrate with other parts of the management organization. The ISO 50001:2011 standard can be applied to all organizations regardless of their type, size, or geographic, cultural and social conditions [17]. The standard follows the PDCA (Plan-Do-Check-Act) process for continual improvement of energy management system and it is shown in figure 2. Picture 2: Model of energy management in ISO 50001:2011 Standard [17] The process of ensuring the realization of planned benefits should be the responsibility of the organization management in the public building, regardless of whether the investor is the organization or the government institution. Achieving effectiveness and efficiency of energy efficiency systems is possible by using the ISO 50001:2011 standard and it is an obligation of all customers and employees of organizations in public buildings. For this purpose, this International Standard should be adopted and declared the national normative document and it should be used as a national standard. The organizational certification in accordance with this Standard provides that energy efficiency projects bring all anticipated benefits. In this way, the investor, the state or the appropriate institutions create the confidence that the implementation of the project is justified. The project budget should provide funds for the implementation of this standard. It is necessary that the public administration authorize body for conformity assessment of organizations with the requirements of the ISO 50001:2011 Standard. These appointed bodies are meant to check and evaluate the energy system of organizations in public buildings where the project of energy efficiency is conducted within the portfolio. The certification of organizations in public buildings proves the orientation of the public administration towards achieving maximum benefits from energy efficiency projects. Management Journal for Theory and Practice Management 2012/62 Conslusion The realization of energy efficiency projects in public buildings represents is an appropriate way in which energy-poor countries, such as Serbia, can achieve a number of benefits for the community. However, achieving the full potential of projects depends on many factors. Based on valid estimates of benefits and costs, it is necessary to make a portfolio of projects that can bring the most benefits in relation to investment. It is necessary to establish an efficient portfolio management towards the realization of specific and general objectives, and then it is necessary to prevent the negative impacts of the rebound effect and ensure the realization of planned benefits. Based on the previously mentioned, it becomes clear that achieving a maximum impact of energy efficiency projects requires a systemic approach to the process of benefits management in projects. The integration of processes of project management and benefits management in one system is the best solution for efficient benefits management. Benefits management should be embedded throughout the project and through all the phases, and in that way it should enable the project to contribute to social development. An adequate benefits management means due responsibility to taxpayers, whose funds are implemented in many energy efficiency projects in public buildings in Serbia. REFERENCES [1] Statistical Office of the Republic of Serbia, Review of external trade of the Republic of Serbia in period 1988-2009., Belgrade, 2010. [2] Ministry of Mining and Energy of the Republic of Serbia, Energy balance of the Republic of Serbia for 2008., Belgrade, 2007. [3] The Executive Council of the Autonomuous Province of Vojvodina Province Secretariat for Energy and Mineral Resources, Programme of Realization Energy Sector Development Strategy of the Republic of Serbia in the AP Vojvodina (from 2007 to 2012), Novi Sad, 2007. [4] Ministry of Mining and Energy of the Republic of Serbia, Energy Sector Development Strategy of the Re public of Serbia by 2015, Belgrade, 2005. [5] Mihić M., Petrović D., Vučković, A., Possibilities of Application of Cost-Benefit Analysis to Energy Effi ciency Projects in Public Buildings, Economic Themes, 49(3), pp. 355-378, 2011. [6] Scherrer, W., Project Management and the Creation of Economic Policy Guidelines at the Sub-National Level, Management, 15(57), pp.15-21, 2010. [7] Jovanović, P., Petrović, D., Mihić, M., Obradović, V., Methods and Techniques of Project Management, Faculty of Organizational Sciences, Belgrade, 2007. [8] Serbain Energy Efficiency Agency, (accessed: 24 November 2011) [9] Jovanović, P., Rudić, T., Šobajić, V., Makarić, M., Project Portfolio Management, Management, 15(56), pp. 28-34, 2010. [10] Greening, L.A., Green, D.L., Difiglio, C. Energy Efficiency and Consumption the Rebound Effect a Survey, Energy Policy, 28(6-7), pp. 389-401, 2000. [11] Alcott, B., Jevons Paradox, Ecological Economics, 54(1), pp. 9-21, 2005. [12] Vučković, A., Application of Standard ISO 50001 as part of Benefits Management Process in Energy Efficiency Projects in Public Buildings in Serbia, Technique Quality, Standardization and Metrology, 66(5), pp. 859-864, 2011. [13] Haugland, T., Social Benefits of Financial Investment Support in Energy Conservation Policy, The Energy Journal, 17(2), pp. 79-102, 1996. [14] Reiss, G., Handbook of Programme Management, Gower Publishing, Ltd., Aldershot, UK, 2006. [15] Project Management Institute, A Guide to the Project Management Body of Knowlidge, Newtown, PA, USA, 1996. [16] Mihić, M., Petrović, D., Strategic Aspect of Project Management, Management, 11(41), pp. 43-51, 2006. [17] International Organization for Standardization, Standard ISO 50001:2011, Energy management systems requirements with guidance for use, Geneva, 2011. [18] Jovanović, P., Investment Management, Faculty of Organizational Sciences, Belgrade, 2006. [19] European Commission, Guide to Cost-Benefit Analysis of Investment Projects, Brussels, 2008. [20] Mankiw, N. G., Principles of Economics, Cengage Learning, Mason, OH, USA, 2008. [21] von Neumann, J., Morgenstern, O., Theory of Games and Economic Behavior, Princeton University Press, Princeton, 1953. [22] Banfi S., Farsi M., Filippini M., Jakob M. (2008) Willingness to Pay for Energy-Saving Measures in Residential Buildings. Energy Economics, 30(2), pp. 503-516. Management Journal for Theory and Practice Management 2012/62 [23] Boemare, C., Quirion, P. Implementing Greenhouse Gas Trading in Europe: Lessons from Economic Literature and International Experiences, Ecological Economics, 43(2-3), pp. 213-230, 2002. [24] Seppanen O., Fisk W.J, Faulkner D., Control of Temperature for Health and Productivity in Offices. ASHRAE Transactions, 111(2), pp. 680-686, 2005. [25] Melton, T., Illes-Smith, P., Yates, J., Project Benefits Management: Linking Your Project to the Business, Elsevier Ltd, Oxford, UK, 2008. Receieved: 01. 2012. Accepted: 03. 2012. About the Author Marko Mihić University of Belgrade, Faculty of Organizational Sciences e-mail: marko@fon.bg.ac.rs Marko Mihić is an assistant professor at the Faculty of Organizational Sciences, Management Department. His research interest includes management, project management, strategic management and change management. He has published 7 monographs and over 80 peer-reviewed papers. As an expert consultant, he has worked extensively for the Serbian government institutions, as well as for several leading national and multinational companies and investors in Serbia. Aleksandar Vučković University of Belgrade, Faculty of Organizational Sciences Aleksandar Vučković was born in Niš at March 31st, 1985. Aleksandar graduated with a bachelors degree at 2009 on Faculty of organizational sciences in Belgrade on Management Department. Also, he graduated with masters degree at 2010 on the same faculty on Department of Management and Organization, Study Group for Project Management. Aleksandar is author and coauthor of several scientific papers in the field of energy and project management, which are published in national and international journals. Miodrag Vučković University of Belgrade, Faculty of Organizational Sciences Miodrag Vučković was born at November 2nd, 1958 in Niš. He has graduated with bachelors degrees on College of Electrical Engineering in Niš and Faculty of organizational sciences in Belgrade on Quality Management Department. Miodrag has 27 years of profesional experience working in the field of quality management in manufacturing and services. Management Journal for Theory and Practice Management 2012/62 Jelena Krstović1, Tamara Vlastelica Bakić2, Slavica Cicvarić Kostić3 1Delta holding, 2,3 University of Belgrade, Faculty of Organizational Sciences The Role of Business in the Society UDC: 005.35 ; 658.012.2 DOI: 10.7595/management.fon.2012.0004 In the new global business setting, companies are expected to achieve economic growth and increase competitiveness, but at the same time to contribute to the sustainable development of economy, environment and society. This paper reviews the role of business in the society through a variety of perspectives that were dominant within a certain period of economics development. Special empasis is given to the corporate social responsibility as a contemporary philosophy of doing business. Key words: business, corporate social responsibility 1. Introduction The business sector plays a very important role in the society today. When describing and defining this role, it is necessary to consider the core business i.e. the reasons why companies are established and operate. It is not to do business per se but to create profit and other benefits both to the owners of the capital, the employees and other participants in the market, as well as the society. It is important to mention that there are authors who discuss corporate social responsibility from an entirely different perspective. Namely, the argument of one of the most influential economists in the USA in the 1970s, Milton Friedman, that the only social responsibility of business to use its resources and engage in activities designed to increase its profits is still frequently quoted even today[1]. Friedman argues that corporations are agents of the individuals who own them and, consequently, nobody has the right to decide how the profit will be shared, except for the owners of this profit. He also argues that in this way, the responsibility is shifted from owners of the capital to the companies which, without a just cause, decide on the distribution of resources, denying the right to the owners of the capital (and profit) the freedom to decide what they want to use these funds for. Although his approach has often been quoted as a different approach to corporate social responsibility, Milton Friedman does not have many followers in the academic community, which may lead one to conclude that the concept that he advocated for has been abandoned both in practice and theory. Since modern companies have a great number of stakeholders, it is necessary to meet and to manage their expectations and demands with respect to the role of corporations as corporate citizens in society. In addition to financial stability and operations embodied in law, stakeholders expect that companies have minimum adverse impact on society and the environment, and a greater level of responsibility through partnership agreements with other stakeholders in the social community, for the purpose of a better overall social development [2]. The objective of this paper is to present the business development path in the society, through various perspectives that were dominant in certain phases, as well as to offer a strategic framework for understanding the philosophy of socially responsible business that defines the role of companies in modern business environments. 2. The role business plays in a society: different perspectives From a business perspective, the main role of a business in a society is to provide good living conditions through production and sales of products and services of value for the customers [3]. As the role and power of business in society changed and grew over time, so did the pressures for its better inclusion into the society and social community. Namely, a greater influence brought forth more responsibility and obligation of businesses to invest into society in which they operated. The roles that the business played in the society during the past decades are summarized below through different perspectives [4] prevalent during the periods specified. Management Journal for Theory and Practice Management 2012/62 Capital Owners Perspective The capital owners perspective implies a traditional profit-oriented approach to management where capital accumulation is the main and the most important role of business. The role of a companys executive is to ensure profit and increase the owners capital since these are the measures of the executives success. Such an approach was prevalent during the period of industrialization, until the 1950s. Societys Perspective The rise in the financial power and influence of companies and owners of the capital entailed, in parallel, a greater interest and pressures coming from the society, demanding that businesses show more responsibility for the society. In the 1960s and 1970s, businesses were regarded as members of societies and their environment who should respond to social pressures and demands with corresponding highly ethical standards. In line with the well-known model of corporate social responsibility [5], businesses have economic, legal, ethical and social responsibilities. Owners and Societys Perspective Since the prime interest of each company is to make profit, which represents a basis for further development, businesses in the 1990s were heading towards harmonization of various expectations i.e. to corporate social responsibility. This actually comprises good business performances as well as social responsibilities that businesses are expected to demonstrate. Stakeholders Perspective A modern business environment calls for new sources of competitiveness which, in recently published literature, increasingly refer to relationships with stakeholders [6]. In global economy which is characterized by a vast number of participants and a high level of their mutual interdependency, the business philosophy is focused on building upon stronger bonds and relationship between companies and their stakeholders that are nowadays regarded as one of the key assets of each company [7]. A business network, comprising a company with all its stakeholders, means a network of multilateral relationships, bonds established on the basis of which people are interacting in a relationship, or resources used by the relationship actors or activities they perform. The role of business in modern environments should be observed from the perspective of a stakeholder. Stakeholders include any group or individual who can affect or is affected by the achievements of the firms objectives [8]. According to Freeman, even in the past, the management models considered traditional stakeholders owners, buyers, employees and suppliers. However, when he presented his new strategic management theory, the author enlarged the stakeholders to equally important groups that may have huge impact on the organization governments, competition, customers associations, environmental groups, special-purpose interest groups, media, etc. Corporate Communitys Perspective The development of information and communication technologies has a significant impact on business environments and the method of doing business [9]. A new economic theory [10], regards a company as a socio-economic system within which the stakeholders act as partners in creating values. The role of a business under such terms is to integrate economic recourses, political support, as well as information and knowledge available to the stakeholders and, consequently, to gain an advantage over its competitors in the market. The global financial and economic crisis that has hit most countries worldwide during the last several years has shown the weaknesses and lack of responsible governance, primarily in financial institutions that contributed greatly to the initial crisis and its deepening. Since the financial power of governments and financial sectors has been weakened by the crisis, the pressure on companies to participate in resolving social issues has increased, primarily in the philanthropy domain. The first focus of a business is to create a greater value for itself, but to do it in a responsible manner [11]. In recent years, companies have been accused by and large of most social, environmental and economic problems, for making a progress to the detriment of society, or for focusing exclusively on profit. That is why, nowadays, the emphasis is on creating a shared value that meets not only economic but social needs, as well. It is regarded as a win-win situation that is beneficial for both parties (Figure 1). Management Journal for Theory and Practice Management 2012/62 Figure 1. Strategic CSR: alignment of benefits for the company and the society[12] The founder and the Executive Chairman of the World Economic Forum (WEF), Klaus Schwab [13], emphasizes that reality has created a need for new multi-stakeholder partnerships between public, private and civil society for addressing major issues, where businesses have an important role to play. The global societys expectations regarding the engagement and contribution of all organizations, and companies in particular, were highlighted in the UN Millennium Declaration [14], that set the goals the fulfillment of which would help solve the major developmental challenges our humanity is facing. The UN Millennium Declaration reiterated that, although public policies should mainly channel and initiate development, the developmental process would depend on the contributions made by all organizations. The Millennium Development Goals (MDGs) include eight time-bound goals related to major global development issues to be achieved by 2015: 1. Eradicate extreme poverty and hunger. 2. Achieve universal primary education. 3. Promote gender equality and empower women. 4. Reduce child mortality. 5. Improve maternal health and achieve universal access to reproductive health. 6. Combat HIV/AIDS, malaria and other diseases. 7. Ensure environmental sustainability. 8. Develop a global partnership for development. Taking into account the presented social responsibility strategy framework, the role of business in todays society can be accessed through the philosophy of corporate social responsibility [15]. It incorporates: creating products and services that have value for the customers, creating benefits for the stakeholders and maintaining a sustainable business, taking into account interests of all stakeholders, by following the principles embedded in law and ethics and with due respect to environmental protection. 3. Philosophy of corporate social responsibility McKinseys survey of global corporate social responsibility demonstrates that society nowadays has greater expectations than before and that companies will take upon themselves public responsibility, so that social responsibility will become increasingly important as a win-win solution both for companies and the society [16]. The research has demonstrated that organizations can achieve an advantage over their competitors through:  Integration of non-economic factors in business operations [17];  Improving theirs image and reputation [18];  Achieving customer satisfaction and positive attitudes and behavior of their employees [19];  Building corporative goodwill [20]. Management Journal for Theory and Practice Management 2012/62 Corporate Social Responsibility (CSR) implies a permanent dedication to ethical principles of business, a contribution to economic development, a positive impact on the quality of life of employees and their families, as well as on the local community and the society as a whole [21]. In its Guide to Communicating CSR [22], the European Commission has defined corporate social responsibility as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. While working on ISO 26000 Standard for social responsibility, ISO 26000 Standard working group [23] defined social responsibility as the responsibility of an organization for the impacts of its decisions and activities on the society and the environment, through transparent and ethical behavior that contributes to sustainable development, including health and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behavior and is integrated throughout the organization and practiced in its relationships. Social responsibility represents a multidimensional concept that covers a wide spectrum of activities and programs that may be developed depending on culture, companys business operations and goals, as well as its business environment [24]. The CSR concept is based on companys mission i.e. the essence of its functioning, while its core business and the goal of creating profit are supplemented by social responsibility dimensions:  Market responsible market behavior means placement of safe and harmless products and services at adequate prices, having due respect for consumers rights, legal and ethical communications related to products and services, etc.  Human resources responsibility towards employees includes the provision of safety-at-work measures; respect for the human rights issues; equality (gender, racial, national, etc.); investing into further development of own employees; provision of additional benefits for the employees e.g. recreation, medical check-ups, etc.  Environment environmental responsibility means being responsible with regard to consumption, preservation and creation of resources, not jeopardizing biodiversity, making a positive impact with regard to the issue of global warming, etc.  Social community responsibility towards society is manifested through the elimination of detrimental impacts of business operations on local communities, solving the local communitys needs and issues, development of a plan of investments into local communities (scholarships, financial support, volunteering activities by employees, etc.), and philantrophy and humanitarian purposes, etc. Social responsibility is often the most visible form of corporate responsibility, but it should be emphasized that short-term investments, like donations, cannot be regarded as equal to social responsibility which also underlines a positive impact achieved in all the above mentioned dimensions [25]. Furthermore, it often happens that companies are more engaged in communicating their own social responsibility through individual short-term actions, while the corporate social responsibility is not embedded in their own business operations [26]. Communicating on ones own social responsibility should be only the peak point on the pyramid of the concept of corporate social responsibility which should be embedded in all other aspects of business operations. 4. Evaluation of corporate social responsibility The CSR generates benefits for a business firm as long as it makes the bonds between the company and the stakeholders stronger. In addition to generating profit, the business firms task is to generate benefits for its stakeholders, from tangible to intangible, from financial to psychological [27]. Numerous studies indicate that stakeholders appreciate companies which are dedicated to corporate social responsibility, although there is no guarantee for the return on the investment in CSR [28]. The most commonly quoted measures for the evaluation of CSR activities by different authors include the following: Management Journal for Theory and Practice Management 2012/62  The amount of money invested in CSR activities, presented in the companys report;  Awards and recognitions for CSR activities;  Ranking by third parties/companies/agencies. These may, for example, include rating institutions that analyse the CSR policy and practices of the organizations and recommend them to investment funds, e.g. Dow Jones Sustainability Investment (DJSI) that includes an integrated evaluation of economic, environmental and social criteria with a strong focus on long-term values of stakeholders. This procedure is usually implemented in case of large corporations. The latest comprehensive survey on corporate social responsibility in Serbia was carried out in Serbia by agencies Synovate Serbia and SMART Kolektiv in 2010 [29]. The survey covering the CSR experts in the corporate sector demonstrated that companies in Serbia recognized the need for corporate social responsibility and assessed that a strategic approach to adopting CSR as a business philosophy would be much more applied in the future. On the other hand, the citizen awareness in Serbia regarding corporate social responsibility is still not fully raised, since one third of the total number of 2241 respondents interviewed said they did pay attention to the way certain companies are involved in social life i.e. whether they are perceived as taking care about the environment, their own employees, taking part in humanitarian events, etc. The major issues for the respondents included: working conditions and employment (health care and safety of workers, provision of a stable/permanent job), as well as environmental protection. Over 50% of respondents believe that the Parliament, local authorities and the Government of the Republic of Serbia are not working for the benefit of the society as a whole, while between 40% and 50% of respondents expressed mistrust both in companies and non-government organizations, which makes the implementation and communication of CSR more difficult. Only 16% of respondents were able to name at least one company that applied socially responsible practices. The most frequently mentioned companies included: Delta Holding, Holcim, Coca-Cola, Hemofarm and Telenor. Apart from the surveys measuring the opinions and attitudes of companies and citizens, another possible way to evaluate CSR is through prizes and acknowledgements awarded by relevant institutions. As an example of best practice which was of topical interest at the time of writing this paper, the author could mention the Disability Matters Award won by the Serbian company Delta Holding in 2012 for a program of professional rehabilitation of people with disabilities. This programme of professional rehabilitation of persons with disability was launched by Delta Holding in 2008 as part of its CSR program directed to social community. The program included education, working and social inclusion programs and employment of persons with disability within the company. Conslusion The role of the business sector has changed alongside the development of economy and the society as a whole, from merely making profit for capital owners, to streaming it towards social benefits of business operations, all the way to harmonizing economic, legal, ethical and social responsibility of companies. Since companies nowadays are regarded as socio-economic systems where stakeholders are partners in creating value, the role of business is to enhance value, but in a socially responsible manner. Modern theory and practice put an emphasis on adopting a philosophy of corporate social responsibility, through all dimensions it integrates. This paper presents a strategic framework for understanding a contemporary role of business in the society. The results of the surveys presented in this paper confirm that companies in Serbia are faced with a huge challenge of understanding the strategic framework of corporate social responsibility, as well as adopting a new business philosophy in spite of a prevailing mistrust in this role of business demonstrated by the civil society. Only through a strategic approach that integrates CSR into business operations will it be possible for businesses in Serbia to fulfill their role of good corporate citizens and meet their stakeholders expectations. Management Journal for Theory and Practice Management 2012/62 REFERENCES [1] Friedman M., The social responsibility of business is to increase its profits, The New York Times Magazine 13 September, pp 3233, 1970. [2] Warhurst, A., Future roles of business in society: the expanding boundaries of corporate responsibility and a compelling case for partnership, Futures, Vol. 37, No. 23, pp 151-168, 2005. [3] Sastry, T., Exploring the role of business in society, IIMB Management Review, Vol. 23, No. 4, pp 246 256, 2011. [4] Steyn, B., From strategy to corporate communication strategy: A conceptualisation, Journal of Com munication Management, Vol. 8, No. 2, pp 168183, 2003. [5] Carroll, A. B., A three dimensional model of corporate social performance, Academy of Management Review, Vol. 4, No. 4, pp 497505, 1979. [6] Smudde, P. M. and Courtright, J. L., A holistic approach to stakeholder management: A rhetorical foundation, Public Relations Review, Vol. 37, No. 2, pp 137-144, 2011 [7] Kanter, R. M., Collaborative advantage, Harvard Business Review, Vol. 72 No. 4, pp 96-108, 1994. [8] Freeman, R.E., Strategic Management: A Stakeholder Approach, Pitman Publishing, Marshfield, MA, 1984. [9] Mitić, M., IS development issues understanding - a condition and an object of social responsibility for IS in Serbia, Management, Vol. 54, pp 69-78, 2010. [10] Halal, W. E., Corporate community: A theory of the firm uniting profitability and responsibility, Strategic Leadership, Vol. 28, No. 2, pp. 1016, 2000. [11] Porter, M. E. and Kramer, M. R., Creating shared value, Harvard Business Review, January-February, 2011. [12] Porter, M.E. and Kramer, M.R., The competitive advantage of corporate philanthropy, Harvard Business Review, Vol. 80, No. 12, pp 56-68, 2002. [13] Schwab, K., Shared norms for the new reality, January, 2011, available at http://www.huffingtonpost.com/klaus-schwab/shared-normsfor-the-new-_b_813413.html [14] United Nations (UN): The United Nations Millennium Declaration, General Assembly resolution 55/2 of 8 September 2000. [15] Pješivac, S. and Marković, A., Corporate social integration electronic business and public policies, Management, Vol. 55, pp 5-15, 2010. [16] Lindgreen, A, Swaen, V. and Maon, F., Introduction: Corporate Social Responsibility Implementation, Journal of Business Ethics, Vol. 85, No. 2, pp 251256, 2009. [17] Porter, M. E. and Kramer, M. R., Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility, Harvard Business Review, Vol. 84, No. 12, pp 7892, 2006. [18] Fombrun, C. and Shanley, M., Whats in a Name? Reputation Building and Corporate Strategy, Academy of Management Journal, Vol. 33, No. 2, pp 233258, 1990. [19] Maignan, I, Ferrell, O. C. and Hult, T., Corporate Citizenship: Cultural Antecedents and Business Benefits, Journal of the Academy of Marketing Science, Vol. 27, No. 4, pp 455469, 1999. [20] McWilliams, A. and Siegel, D. Corporate Social Responsibility: A Theory of the Firm Perspective, Academy of Management Review, Vol. 26, No. 1, pp 117127, 2001. [21] Watts P. and Holme, R., Meeting Changing Expectations, Corporate Social Responsibility (WBCSD, Geneva), 1999, available at http://www.wbcsd.org [22] European Commission (2003), White Paper on Corporate Social Responsibility [23] International standard ISO 26000.Guidance on Social responsibility. ISO 26000:2010 [24] Lindgreen, A, Swaen, V. and Maon, F., Introduction: Corporate Social Responsibility Implementation, Journal of Business Ethics, Vol. 85, No. 2, pp 251256, 2009. [25] Vlastelica, T., Media Campaign Publicity and Advertising, Zadužbina Andrejević, Belgrade, 2007. [26] Perakis, E., Material from the training Corporate Social Responsibility CSR: How to start and man age the programs of social responsibility in your company, Belgrade, 2007. Management Journal for Theory and Practice Management 2012/62 [27] Cicvarić Kostić S., Communications and RelationshipMarketing in Public Administraion, Zadužbina Andrejević, Belgrade, 2011. [28] Bhattacharya, C. B, Korschun, D. and Sen, S., Strengthening StakeholderCompany Relationships Through Mutually Beneficial Corporate Social Responsibility Initiatives, Journal of Business Ethics, Vol. 85, No. 2, pp 257272, 2009. [29] Synovate research Socially responsible business from the perspectives of citizens and other actors in the process, presentation delivered in October 2010. Receieved: 01. 2012. Accepted: 03. 2012. About the Author Jelena Krstović Delta holding e-mail: jelena.krstovic@deltaholding.rs Jelena Krstovic graduated in Chinese language and literature at Belgrade University and holds a Masters degree in public relations and multimedia communications from the Faculty of Organizational Sciences. She works at the position of Delta Holding Vice President, where she is engaged in corporate communications as well as in creation of strategic corporate development and leads the companyžs Office of International Relations. Ms Krstovic is member of key business associations and Vice President of Italian Chamber of Commerce in Serbia. Jelena.krstovic@deltaholding.rs Tamara Vlastelica Bakić University of Belgrade, Faculty of Organizational Sciences e-mail: tamarav@fon.bg.ac.rs Tamara Vlastelica Bakić, PhD, is the lecturer at the University of Belgrade, Faculty of Organizational Sciences, at the Department for Marketing and Public Relations. She was a Corporate Affairs Manager at Coca-Cola Hellenic Serbia and Head of Marketing and Corporate Communications at Deloitte Serbia. Tamara is the author of the book Media Campaign publicity and advertising and co-author of the book Public Relations - The Best Practice 2011. She was a marketing and PR consultant for numerous companies, NGOs and PR agencies and she was a lecturer and trainer at educational programs in the field of communication management. Tamara is a member of the professional jury for annual PR awards (2006-2013) and she was a member of the Managing board of the Public Relations Society of Serbia. She was the chairman of the Working group for education and development of CSR in the United Nations Global Compact Serbia. Slavica Cicvarić Kostić University of Belgrade, Faculty of Organizational Sciences e-mail: cicvarics@fon.bg.ac.rs Slavica Cicvarić Kostić, PhD, is the assistant professor at the University of Belgrade, Faculty of Organizational Sciences, at the Department of Marketing and Public Relations. She is the author of the books in the fields of branding and communications. Slavica is a lecturer at seminars and trainings in the field of communications. She worked as a consultant in the fields of public relations and marketing for organizations of corporate and public sectors. Slavica worked as a Director of Business Development in the international consulting company for communications, Hauska & Partner International Communications. She was a Public Relations Manager in investment company MPC Properties, which was a strategic partner of Merrill Lynch. She is a member of the Editorial Board of the International Journal of Marketing Principles and Practices, a member of the International Advisory Council for the Marketing Profession and the Public Relations Society of Serbia. Management Journal for Theory and Practice Management 2012/62 Slavica P. Petrovic University of Kragujevac, Faculty of Economics Critically Generated Knowledge - the Triple Loop Learning Result UDC: 005.94:005.22 DOI: 10.7595/management.fon.2011.0002 In contemporary circumstances, one of the key features of managing the organizations is the increasing complexity and heterogeneity of problems which are relevant for the organizations survival and development. At the same time, there is an increasing diversity and variety of theories, methodologies, methods, techniques, and models that are available for dealing with the management problem situations. Diversity Management, as a complementarist meta-theoretical development within critical systems thinking, seeks to provide an appropriate base of guidelines for making theoretically and methodologically informed and responsible choices. Triple Loop Learning, as a methodological development of Diversity Management, is focused on simultaneous and creative management of three main organizational issues: design, debate, and power and legitimacy. Relevant insights into the management problem situation under consideration, in which one wants to intervene, can be critically generated through the triple loop learning process. An appropriate improvement in the problem situation can be achieved through the theoretically and methodologically underpinned management of design, debate, and power-knowledge dynamics, i.e. through the implementation of the critically generated knowledge. Keywords: management problem situations in organizations, critical systems thinking, Diversity Management, Triple Loop Learning, knowledge for meaningful and responsible choices 1. Introduction The increasing diversity of issues, problems, and problem situations - that are characterized by great complexity, dynamics, interactivity, and ambiguity - represents a relevant feature of managing the organizations in contemporary circumstances. At the same time, the existence of the increasing diversity and variety of models, techniques, methods, methodologies, and theories - available for scientifically grounded and practically useful dealing with these issues, problems, problem situations, and dilemmas related to them - is of paramount importance. As a complementarist meta-theoretical development of the contemporary critical systems thinking, Diversity Management seeks to provide a suitable base of guidelines for making the conceived and responsible choices in organizations. Triple Loop Learning is a methodological development of Diversity Management. The triple loop learning process is focused on simultaneous and creative research into the three important issues concerning: a) a design of the organizations management problem domain - How?, b) a debate between the participants in the problem situation about the ends and means of their achieving - What?, and c) a power relationship within the organizations problem situation, and a legitimacy of the proposed solutions for the problems - Why? Triple loop learning is preliminarily seen as an appropriate development of single loop learning and double loop learning. Single loop learning can be developed into three relevant types of learning; each of them is underpinned by the suitable theoretical-methodological, and applicative approaches. Scientifically based and practically valid knowledge, as a foundation for making purposeful and accountable choices in organizations, should be critically generated in the triple loop learning processes. A corresponding improvement of the organizations problem area can be achieved through implementation of the broadened and deepened knowledge about the management problem situation, acquired in the learning process. Management Journal for Theory and Practice Management 2012/62 2. The complementarist meta-theoretical foundations of triple loop learning Diversity Management (DM) represents a complementarist meta-theoretical development of the contemporary critical systems thinking [3; 4, pp. 308-312; 9, p. 145]. DM has been preliminarily focused on managing the increasing diversity of issues, problems, and problem situations, with which managers are confronted, by means of the increasing diversity of types of models, techniques, methods, methodologies, and theories. However, the diversity per se generates a new key issue that has to be managed: How to choose between the available models, techniques, methods, methodologies, and theories? Therefore, in DM, the emphasis is on the management of the increasing diversity of theories, methodologies, methods, techniques, and models, thereby it can contribute to the enhancement of management of the increasing complexity and diversity of issues, problems, and problem situations in organizations. That is, in DM, the two crucial concepts - diversity and management - possess the precisely determined meanings: diversity creative managing of organizational issues, problems, and problem situations requires to make more choices being available; management - the choices have to be carefully thought-out and responsibly made. According to the basic idea of Diversity Management, there is no argument released from the dilemmas. The existence of the dilemmas in solutions of any theoretical-methodological argumentation is also true for the complementarist1. assertions. However, the complementarist argumentation strength is in the increasing awareness of the existence of dilemmas, so these dilemmas can be carefully explored, not ignored, or avoided. A mentality of tolerance, i.e. a way of thinking in which the permissibility, scrupulosity, and tolerance have a crucial role, is, first of all, relevant to the Diversity management of the theoretical approaches. Besides, tolerance has to be complemented with an appropriate meta-theory that is responsible for making choices on the level of methodological practice. In this context, tolerance means a comparison between the theories through some form of argumentation. When a methodological choice has been made by the researchers, it is vitally important that they adhere the theoretical notion that embodies directly a certain action. A theoretical sensitivity - that implies a meaningful re-evaluation of the favoured notions, and an interpretation of the gathered information from the different perspectives - is built into the researchers through a recognition of the constructed character of the theoretical statements. Since the acquired insights do not imply a direct translatability of the available information between the considered theories languages, the researchers have to circle between the alternative visions in order to gather the new information, and recognize it as different. The details of any theoretical vision selected for a particular purpose of intervention have been made explicit through the required knowledge. The practitioners are therefore able to make choices, and to accept responsibly the consequences of the selected actions. For giving the answer to the question: How can a theory lead to an intelligent and accountable choice, it is significant that the decisions on the requirements for the different knowledge should be made from the viewpoints of the theories implications for practice. Both theory and practice can be strengthened through maintaining the dialectical link between theory and practice [11, p. S13]; in the given context, it means that judging about a theoretical vision is connected with judging about the actions that are defensible. The following dilemma is particularly significant for the framework of this consideration: How can the researchers choices be justified, when it is recognized that the standards for making the choices differ? For example, in Organizational Cybernetics, the standards are connected with a purposeful design and organization, in the Systemic Interpretivism methodologies, the standards are related to enabling the participants adaptation in the problem situation through the debate process, and for the Critical Systems Modernism methodologies, the normative standards for measuring the extent to which the dominant forces shape the stakeholders debate are required. The necessity of determining a basis for judgement results from the evident fluidity of the criteria for judging. DM has to provide a basis of guidelines for creative choice making. According to DM, it is argued that a critique and self- critique [6, pp. 868-878; 7, pp. 208-210; 8, p. 77] can lead to a certain quality of making choices, avoiding relativism and absolutism. In DM, a theoretical, i.e. methodological choice represents a post-critical turning point, when the decisions can be made taking into 1 Complementarism can be determined as an endeavour to preserve diversity in different spheres of thinking and acting. The stakeholders opportunities for reasonable and responsible managing the most demanding problem situations in organizations are improved by the diversity preservation. Management Journal for Theory and Practice Management 2012/62 account the critiques results. The aims - which are judged as valuable to be pursued - are selected. The incompleteness of assessment suggests that all judgements are fragile, and arguments used to defend the judgements are never simple. The influences of power, that is built into knowledge and decisions focused on action, are relevant for making the choices. An awareness of theoretical and methodological work, if it is treated with a sensitivity to the dilemmas, represents the first step towards the guidelines for a better making choices, and, therefore, for diversity management. As a result, a conceptual framework, in which the systems aims - classified according to a particular theory, methodology, or model - can be valued, is provided. This helps the stakeholders to consider the relevance of the different aims and the way in which the aims can be aligned. The choices will be a matter of judgement, but their defence relies on a broader conceptual framework that arranges the aims one in relation to another. 3. Triple loop learning Diversity management, as a complementarist meta-theory of critical systems thinking, is methodologically developed within Triple Loop Learning (TLL) [3; 4, pp. 312-317; 9, p. 145]. A key purpose of Triple loop learning is to acquire the relevant knowledge about diverse, complex, and ambiguous management problem situations in organizations. These insights and findings - critically generated through the Triple loop learning process - should support the process of creative management of the increasing diversity of issues, problems, problem situations, (and dilemmas related to them), important to the organizations development. Therefore, TLL is committed to uncover the theoretically and methodologically grounded, and valuable ways of a conceived and responsible managing the diverse problems of the organizations functioning in contemporary circumstances. Triple loop learning should be seen as an appropriate development of single loop learning, and double loop learning. Single loop learning Single loop learning can be determined as end-means thinking. Since the ends have been set, it is the search for the best means of their achieving. A general question in the single loop learning process can be posed in the following way: How should we act in order to best accomplish the set ends? There are no other definitions of the ends, or they are unknown. Those who learn through single loop are focused on finding the best means of achieving the defined objectives and goals. In other words, those who learn through single loop are oriented to the task, i.e. they are exclusively concentrated on identifying the best tools, ways, resources for accomplishing the ends. An identification of the ends and means of achieving these ends is not regarded as problematic. The three relevant types can be identified within single loop learning; each of them represents a particular, exclusive use of one of the three possible loops - Figure 1. The three main types of single loop learning. Figure 1. The three main types of single loop learning The first type of single loop learning is a most widely comprehended learning about the processs design and the organizational design - Figure 1.(a). In case of the processs design, the subject of consideration includes the approaches focused on processes, such as Business Process Reengineering. The next question is in the center of learning: Are we doing the things in the right way? That is, the key question is: Management Journal for Theory and Practice Management 2012/62 How should we do these things? In such circumstances, the means imply a search for some radically improved set of processes of achieving the defined aim, measured in terms of efficiency. On the other hand, in a case of the organizational design, the ends are included in the models; these models have to offer the most effective rules of organizational design, and the means imply a search for the implementation principles in order to generate a suitable way of accomplishing the set ends. Within the structuralist paradigm, an organization can be holistically diagnosed and (re)designed by the use of the appropriate Viable Systems Model (VSM)2 - Figure 2. The Conceptual framework of Viable Systems Model; this is of significance for learning about organizational design, and creative managing the design. In VSM, as a methodological tool of Organizational Cybernetics, organizations are understood as complex, dynamic, and open systems. Organizations are capable of responding adequately to the stimuli that were not anticipated during the process of their designing; thus, they can oppose to the internal interruptions and errors, and can adapt continually to the changeable environments actions. Relying on experience, organizations, as viable systems, can learn what their sustainable response to the relevant influences from the system and its environment is. At the same time, organizations can sustain themselves over the long term only by means of the appropriate two-way relationships with their environments, from which they obtain and to whom they give the information relevant for their survival. Besides, organizations are characterized by the existence of purposeful, relatively independent, and dynamic segments, whose interactions have to be appropriate to the aims of the system as a whole. Through promoting a creative thinking about organizations, VSM includes and organizes the following three significant entities: a) the operational elements - the organizations components dealing with implementation; b) meta-system composed of the four management functions: coordination (dealing with the short-term problems in the systems operational elements); control (maintaining the internal stability of the system); intelligence (gathering the relevant information about the strengths and weaknesses of the systems process, and options and threats of the external environment); identity (developing the systems policy); c) environment (the local environments of each operational element and a future environment for making the developmental decisions). Figure 2. The Conceptual framework of Viable Systems Model Shortcomings and errors - in relation to the ends of the organization as a system - of a proposed systemic design, or a real organization, should be uncovered within the VSMs use, through identifying and diagnosing the system. A tool for dealing with the problem of designing an effective organization is provided by means of diagnosis and the resulting redesign of the system. VSM helps continual learning and improving the 2 A broader insight into the theoretical foundations, methodological development, and using of the VSM is provided, for example, in: [1; 10, pp. 387-410]. Management Journal for Theory and Practice Management 2012/62 organization; also, VSM provides the management entities with a variety that is necessary for effective and efficient management of the organization. At the same time, VSM does not deal in an appropriate manner with the important issues of the social processes, culture, and power in organizations. As in the other tools of this single loop learning type, a previously set aim has been taken over and pursued, control is delegated on the organizations parts, who are the only ones allowed to develop the alternative ways for achieving the aim. The second type of single loop learning represents a most widely grasped learning about the processes of debates, i.e. the discussions, through which the organizations ends should be set - Figure 1.(b). A certain kind of interpretive intervention in organizations is the relevant subject matter in this single loop learning type. This interpretive-grounded intervention in the management problem areas should be considered as a theoretical, methodological, and applicative response to an obsession of the first type of single loop learning with finding and implementing the structuralist solutions. In fact, the debates - necessary for setting the organizations ends - between the participants are prevented in the first type of single loop learning. In the second type of single loop learning - through interpretivism, as the relevant scientific paradigm - setting the ends and determining the means of their achieving are considered as problematic. This is because in each organization in contemporary circumstances there are many different stakeholders with, as a rule, various interests, value systems, ends and means of their achievement, different participation in formulating the problems and finding their solutions, different participation in making the decisions and their implementation, different power. There is a following key question in the centre of this single loop learning type: Are we doing the right things?, i.e. What should we do? As the first type, this type of single loop learning is also oriented towards the task - now: the task of setting the ends and achieving them by the appropriate means. In relation to the first type of single loop learning, the different ends and means of their achieving are determined: The ends become the appropriate reconciliations between the participants in a debate on the preferred results of the organizations functioning. Participative, open, and free debate between the participants in a problem situation, which is the research subject and in which one wants to intervene in order to improve it, becomes an adequate mean of achieving the aim of learning, that has been set in such a manner. An intervention in the organizations problem area represents a participative process; in this process, the designs for organizing processes, and the arrangements for structuring are discussed from different points of view, through the debate between the participants, and enriched by an interpretive thinking about relevant dimensions of organisations as cultural phenomena. Despite the undoubted breakthrough from the viewpoint of the resulting insights and knowledge important to managing the problem situations in organizations, the whole process, however, as in the first type of single loop learning, is under the domination of an exclusive focus on the redefined ends, and means of their achievement. As a theoretical-methodological support to the interpretive-grounded single loop learning, there are the methodologies belonging to the hermeneutic paradigm of systems thinking3 - Soft Systems Methodology (Checkland, P.B.), Interactive Planning (Ackoff, R.L.), Strategic Assumption Surfacing and Testing (Masson, R.O., Mitroff, I.I.), Robustness Analysis (Rosenhaed, J.), Strategic Options Development and Analysis (Eden, C.). Soft Systems Methodology (SSM)4 can underpin the interpretive learning about the complex-pluralist problems in organizations, in a scientifically founded and practically useful way - Figure 3. The Process of Soft Systems Methodology. SSM deals with those management problems that - besides the complexity of the structure and processes - are characterized by the relatively autonomous participants, with different interpretations of the problem areas in organizations. This important variety of the viewpoints and interpretations should be developed and explored, particularly in the context of determining the common ends and means for intervention in the organization. In addition, within SSM, the concept of the system is used as an epistemological tool, i.e. as a tool for organizing and transferring the ideas and thinking about organizations and their problems. The four key principles are built into the SSM basis: a) learning - a continual process of defining the different ways of moving through the problem situation, with regard to: relevance (for those included into the situation), cultural feasibility (the restrictions that have to be respected) and systemic desirability (holistic thinking must not be undermined); b) culture - the organizational and/or 3 The interpretive systems methodologies have been developed, for example, in: [5; 10; 12]. 4 The key theoretical, methodological, and applicative features of Soft Systems Methodology can be found out, for example, in: [2; 5, pp. 181210; 10, pp. 486-506; 12] Management Journal for Theory and Practice Management 2012/62 social limitations whose changes have to be met through interventions; c) participation - in the exploration and intervention - of those who are included into the problem situation, has to be guaranteed; d) the two ways of thinking - an abstract systemic thinking and thinking about the reality associated with specific contexts. SSM represents a learning system that employs the ideas about the systems in formulating the basic mental procedures - observation, assertion, comparison, and deciding on action. Through the following seven phases, SSM includes: 1) uncovering, i.e. exploring the problem situation (The stakeholders, along with the problem situations structure, its processes, and the resulting milieu, should be identified.); 2) expressing the problem situation (The identified key issues, conflicts, problem features of the situation are encompassed within so called rich pictures.); 3) formulating the so called root definitions of the extracted sets of the relevant systems for the conceived action (It is necessary to specify: What should be done, and why, who should do that, who should benefit, i.e. suffer damage from the activity, what are the restrictions on the given actions imposed by the environment.); 4) constructing the conceptual models of the systems specified within the root definitions (these models represent the means of understanding of the reality, and initiating the discussion, whose results have to be the changes towards improving the situation.); 5) comparing the models with the real-world actions (the structure and substance of an organized debate about improving the problem situation are provided through this methodology phase.); 6) determining the systemically desirable and culturally feasible changes in the problem situation through a coherent debate; 7) taking action in order to improve the problem situation (an effective and efficient implementation of the determined desirable and feasible changes in the problem area with the aim of its enhancing). Figure 3. The Process of Soft Systems Methodology SSM helps the process of generating a mutual understanding between the participants in the management problem situations. On the other hand, due to the constraints of the interpretive theory built into SSM, SSM does not include the organizations interest in prediction and control, and does not pay the necessary attention to the achievement of the participative decision-making released from the influences of the power relationships, and coercion. The third type of single loop learning is focused on the power-knowledge dynamics - Figure 1.(c). A corresponding subject area can be determined as an impartial practice for the participants involved in the problem situations, in which it is intended to intervene. This type of single loop learning represents a reaction to an exclusive focus of the first and second types of single loop learning on an intervention based on design and debate, respectively. That is, determining the ends and means in the learning centre of the type How? is considered as problematic, because of an implicit risk of producing the results that are unfair - if not for many participants, then - for some participants in the problem situation. At the same time, the tools of a debate in the learning centre of the type What? are regarded as problematic, because the debate about the desirable states and means of their achieving has been distorted by means of the influences of coercion; it means that the debate in the problem situation is not open, free, and participative, i.e. is not fair for those over whom a coercion is applied in the organization. Management Journal for Theory and Practice Management 2012/62 A new center of learning with the following central question is developed within the third type of single loop learning: Is fairness supported by power or vice versa? The key question in this single loop learning type is: Why should we do it?, or Why should we fight to preserve/protect a power-rightness arena from the debates, when such a debate enables a research into the power-knowledge configurations in the system. Although the question Why? is fundamentally different from the questions characterising the learning centres of the types How? and What, this question is still focused on the task of achieving the ends through the appropriate means. Different ends are set and different means are determined within the third type of single loop learning. Now, the ends are expressed as the forms of an impartial practice, and the means represent the ways in which this fair, i.e. fairer practice can be realized. A learning process is under the domination of an exclusive focus on the set ends and the means corresponding to these ends. Within the theoretical, methodological, and applicative approaches supporting the first and second types of single loop learning, these ends and means are regarded as problematical. The forms of an impartial practice, treated as the ends, and the ways in which such practice can be realized are not considered as scientifically based, but as ideological. It is believed that the processes of generating the knowledge are underestimated due to the focus on understanding of the power-knowledge relationships. Therefore, the assertion of the third type of single loop learning - that a judgement about quality of any knowledge or learning can become impossible because of the influences of coercion - is regarded as ideological. However, the proponents of the third type of single loop learning argue the opposite: according to them, ideology appears exactly because the people fail to problematize the relevant power-knowledge connections. The Critical Systems Heuristics (CSH)5 methodology can support learning about the power-knowledge dynamics in organizations, in a scientifically grounded and practically useful way. As an emancipatory development within the critical systems thinking paradigm, CSH deals with the management problems that are characterised by the coercion, and in which the power sources can be relatively easily identified. Relying on the appropriate philosophical foundations, CSH seeks to develop a methodology that can be used by the organizations stakeholders in order to reveal a normative content of the functioning design and/or the proposed design of the system. In doing so, the normative content of the organizations design involves the value assumptions built into the design and the consequences of the designs implementation for those affected by the design. Within the practical reasoning, the appropriate paradigm of the conceived systems is developed; the design creators can employ this paradigm in order to think critically about the existing designs and to identify the possible alternative designs; on the other hand, the procedures for critical challenging the systemic rationality of the systems designers are developed for those who have to function in/with the respective design. Within CSH, the purpose of systems thinking and learning is to shape scientifically the systems design, in order to ensure improving the stakeholders position. The epistemological position of CSH points to an endeavour to expand science and rationality also on the ends. In searching for the knowledge and rational action, the assumptions built into the judgements are critically reassessed; systemic indicates the necessity of critical thinking about the undoubted lack of comprehensiveness and objectivity of all designs of social systems; heuristics implies providing a suitable method for continual reassessment of the assumptions built into the designs, and their unquestionable incompleteness. There are twelve critically heuristic categories that are vitally important for the CSH-methodology development, and its employment in the process of generating the knowledge; these categories make a clear distinction between: those who are involved - a client, a decision maker, a planner, i.e. a designer, and those who are affected, but who are not involved in the processes of building the systems design, and deciding - so called witnesses. The developed system should generate the knowledge that is important for the ends, and encourage the debate about the ends; at the same time, all proposals for the design of the explored management problem domain should be critically assessed in the categories of the normative design. The following three questions can be considered as decisively important: a) What can one find out? (the endeavours to map the organizational reality and construct the adequate designs of such systems are characterized by the undoubted deficiency of comprehensiveness.); b) What may one do? (the values embedded in the designs, and the moral deficiencies of the designs have to be explored.); c) What may a 5 The philosophical foundations, methodological development, the ways of employing the Critical Systems Heuristics have been presented, for example, in: [13; 10, pp. 525-538]. Management Journal for Theory and Practice Management 2012/62 participant in the problem situation expect? (there is no absolute guarantee that exploring, i.e. designing the problem situation and implementing the design will result in improving the situation and the participants position in it.). A practical tool that can be used by the stakeholders in order to commit the designers to a rational debate about the incompleteness of their designs represents a special part of the methodology. It is about a polemical using the boundary judgements about what it is important for the management problem domain, and consequently has to be included into the process of research and learning, as well as, what it is less important or irrelevant, and therefore can/may be excluded from the process of consideration. The twelve boundary questions specified in two different contexts - the is manner and the should be manner - are simultaneously posed and considered in the process of uncovering a normative content of the systems design. In doing so, the questions concerning: the clients - talk about the value basis of the design, the decision makers - indicate the power base, the designers - testify about the basis of expertise, the witnesses - point to the basis of the designs legitimacy. CSH is aimed at: a) learning about the problem situations and their designs, and b) freeing of the power relations; as a result, CSH provides a heuristic support to identifying, testing and enhancing the normative content of the social systems designs. CSH uncovers the interests to which the proposed design serves, and contributes to organizing a rational debate about the deficiencies of the design. In addition, CSH does not deal with the problem situations characterised by subtle and complex use of the power. Double loop learning An existence of the three different centres of single loop learning results in numerous conflicts concerning the issue of which of these centres is the most appropriate to the management problem area, and which, therefore, should be chosen. Each type of single loop learning seeks to attract the researchers by demonstrating its own superiority in resolving the issues and dilemmas appearing within the other two types of single loop learning. An appropriate reconciliation between the first and the second types can be seen as a particular attempt to overcome the concerned conflict. This reconciliation is the most probable because the first centre and the second centre find that the intervention resulting from the third type of learning is ideological and unscientific, and, therefore, it can be challenged. This reconciliation between the learning type How and the learning type What represents double loop learning - Figure 4. Double loop learning. Double loop learning strives to bring into interaction the learning centres that include the practices of debates and designs by posing and considering the two key questions: Are we doing the right things? and Are we doing the things in a right way? What and How learning centres, which explain these two questions, respectively, without an emphasis on the nature of intervention focused on the task, ought to be protected by double loop learning. An intervention is developed in a suitably conceived direction, accepting the problem of choice between the two centres, and tackling this problem in any moment of the problem situations exploration that should be enhanced through that intervention. The new relevant insights, i.e. the broadened and Figure 4. Double loop learning. deepened knowledge about the problem area in the organization are generated through the process in which the researchers/practitioners circulate between the two learning centres. That is, there is a certain albeit limited - complementarism of perceptions of the problem situation simultaneously from the two important aspects: a) the pluralist relationships between the participants in the problem situation, implying that an appropriate compromise - on the preferred ends and the ways of intervening in the situation - has to be reached between them, and b) the complexity of the situation, that has to be designed in a suitable Management Journal for Theory and Practice Management 2012/62 manner. The appropriate theoretical-methodological and applicative developments can support a simultaneous exploring of these two important dimensions of organizational functioning, and learning about them through the two centres of the types What and How; namely, a) a particular methodology belonging to the interpretive scientific paradigm, for example, Soft Systems Methodology, as a dominant, and b) a corresponding methodology belonging to the functionalist-structuralist scientific paradigm, for example, the methodology of Organizational Cybernetics, as a supportive, are chosen and implemented. The concerned choices of the methodologies (and their associated methods, techniques, and models), and their implementation in structuring the problem situations allow for the researchers to simultaneously deal with the relevant issues of effectiveness and efficiency of the organizations functioning, in a scientifically grounded, practically useful and responsible way. In other words, an appropriately conceived and performed management of the debate between the stakeholders about what should be done, and how the changes should be implemented in order to achieve a desirable enhancement of the problem situation in the organization has been enabled. Those who learn through double loop can fall into a less thought-out awareness. The researchers - and their knowledge about the problem situation - can be stuck in a central position, looking outside - Figure 4.(b) instead of circulating between the centres of types What? and How? It is about a double or a blurred vision. In the case of a double vision, the researchers still receive the information from the two learning centres, but they do not try to manage the vision; rather, they act in accordance with the ends and means of their preferred loop, and, in doing so, they change the nature of the other loop. In the conditions of the double vision, there is no readiness to think about the premises embedded in the preferred loop. In the case of a blurred vision, there is a particular, eclectic awareness. The practitioners seek to achieve any ends they meet, continuing to use the means that are immediately available to them; the practitioners follow the direction which is well-established and does not imply careful thinking about the details of the situation. Triple loop learning An establishment of tolerance between all three centres of learning and, as a result, a preservation of a variety should be enabled in the process of triple loop learning - Figure 5. Triple loop learning. Figure 5. Triple loop learning Within triple loop learning, the three relevant questions: Are we doing the things in a right way?, Are we doing the right things?, and Is fairness supported by power, or is power underpinned by fairness? strive to be integrated in an appropriate holistic knowledge, i.e. in a systemic knowledge about the management problem area. An intervention is not longer oriented to a task because the How?, What? and Why? centres of learning - which have been supported by these three questions - are entering the consideration in any moment as a base for: a) producing the valid knowledge and b) making the accountable choices. There is a new thought-out awareness, since the researchers circulate continually between the three specified questions - Figure 5.(a). Through the concerned circulation, the stakeholders of the problem situation can develop an appropriate debate for each learning centre: a structuralist debate for the How? learning centre, an interpretive debate for the What? centre, and an emancipatory debate for the Why? learning centre. In doing so, a critical Management Journal for Theory and Practice Management 2012/62 production of the deepened and broadened knowledge about the problem area in the organization, that should be improved is enabled. Those who learn through a triple loop connect the three centres of learning into the appropriate triple loop, and simultaneously explore the relevant dimensions of design, debate, and power-knowledge relationships. The resulting overall knowledge is more than the sum of parts that make it. It is about an appropriate systemic complementarism which enables the stakeholders involved in the situation, as well as those affected by the found and implemented solution, to critically manage the powerknowledge relationships, debate, and design. Those who learn through triple loop are able to consider the extent to which the different methodologies correspond to the different types of ends: How?, What? and Why? that are identified as decisively important for an intervention. That is, they are capable of interpreting the methodological principles and the associated operational procedures, in a manner that helps them discuss the selected purpose. Thus, the knowledge about the methodological options, that can be included into exploring and making choices, is relevant to the choice and managing the purpose. Triple loop learning enables the researchers/managers/practitioners to holistically manage the diversity of methodologies, methods, techniques, and models for the three learning centres, and, in turn, to purposefully improve management of the diversity of issues, problems, problem situations, and related dilemmas, that are relevant to the organization. In its basis, triple loop learning represents making a choice about the ends that should be achieved in certain circumstances. Also, through the triple circulation, the researchers/practitioners are encouraged to explore the possible principles and processes of action in certain circumstances. The researchers become familiar with a diversity of possible courses of action for the selected purpose. Thus, the methodological courses of action are locally developed and implemented, in accordance with the specificities of the respective problem situation. As in double loop learning, those who learn through a triple loop can fall in a less thought-out awareness; i.e. they can get stuck in the center, looking outside. As a result, a circulation between the three learning centres either stops or does not start - Figure 5.(b). An uncritical pursuing a preferred vision, or an unproductive eclecticism, when the monotonous, dominant and repetitive patterns have been chosen and implemented represent an inappropriate solution for a triple vision, or the circumstances with much confusion. Conslusion Within the process of triple loop learning, a critical production of the relevant insights and knowledge about the important dimensions of the management problem situations in organizations implies a development of the appropriate discourses - structuralist, interpretive, emancipatory, i.e. critically systemic - for each How?, What?, and Why? learning centre. A creative management of the design, debate, and power-knowledge dynamics can be provided by means of implementation of the resulting - deepened and broadened - knowledge about the considered problem area in the organization. Relying on Diversity Management, as a complementarist meta-theoretical development of critical systems thinking, triple loop learning indicates: a) the relevance of awareness about the complexity of the process of knowledge construction, b) the importance of not-obsession with the particular theories, methodologies, methods, techniques, and models, that can be employed in the processes of managing the problem situations, c) the possibility and desirability of action in the management problem situations without a pre-selected and exclusive focus on a particular learning loop. Triple loop learning helps the practitioners explore the principles and the processes of action in certain circumstances, to continually take care about the purpose to which they tend, not to act through a pre-selected learning loop in all management problem situations. In particular, triple loop learning helps the practitioners who are characterized by an eclecticism, which is inappropriate to grounded and accountable management of the complex and ambiguous problem situations in organizations. Within an intervention that relies on the knowledge critically generated in the triple loop learning process, the focus is on a local - in the temporal and the spatial sense - improvement of the explored management problem area in the organization. Management Journal for Theory and Practice Management 2012/62 REFERENCES [1] Beer, S. Diagnosing the System for Organization. Wiley, Chichester, 1994 [2] Checkland, P.B. Systems Thinking, Systems Practice. Wiley, Chichester, 1996 [3] Flood, R.L. and Romm, N.R.A. Diversity Management: Triple Loop Learning. Wiley, Chichester, 1996 [4] Flood, R.L. and Romm, N.R.A. From Metatheory to ΄Multimethodology΄. In: Mingers, J. and Gill, A. (eds.) Multimethodology - The Theory and Practice of Combining Management Science Methodologies. Wiley, Chichester, 1997, pp. 291-322. [5] Jackson, M.C. Systems Thinking: Creative Holizm for Managers. Wiley, Chichester, 2003 [6] Jackson, M.C. Beyond Problem Structuring Methods: Reinventing the Future of OR/MS. Journal of the Operational Research Society. Vol. 57, pp. 868-878, 2006 [7] Mingers, J. Realising Systems Thinking - Knowledge and Action in Management Science. Springer, New York, 2006. [8] Petrovic, S.P. Coherent Pluralism in Managing Problem Situations. The Book of Abstracts of The 18th Triennial Conference of the International Federation of Operational Research Societies, IFORS 2008, p. 77, Sandton, South Afica, July 13-18, 2008 [9] Petrovic, S.P. Triple Loop Learning - A Complementarist Systems Approach to Management. The Book of Abstracts of The 23rd European Conference of Operational Research, EURO 2009, p. 145, Bonn, Germany, July 5-8, 2009 [10] Petrović, S.P. Sistemsko mišljenje, Sistemske metodologije. Ekonomski fakultet Univerziteta u Kragujevcu, Kragujevac, 2010 [11] Rosenhead, J. Reflections on fifty years of operational research. Journal of the Operational Research So ciety. Vol. 60, pp. S5-S15, 2009 [12] Rosenhead, J. and Mingers, J. (eds.) Rational Analysis for a Problematic World - Problem Structuring Methods for Complexity, Uncertainty and Conflict Revisited. Wiley, Chichester, 2001 [13] Ulrich, W. Critical Heuristics of Social Planning - A New Approach to Practical Philosophy. Wiley, Chichester, 1994 Receieved: 05. 2011. Accepted: 02. 2012. About the Author Slavica P. Petrović University of Kragujevac Faculty of economics e-mail: pslavica@kg.ac.rs Slavica P. Petrovic is a Professor at the Faculty of Economics, University of Kragujevac. She graduated at the Faculty of Economics, University of Belgrade. She received her M.Sc. and Ph.D. in Business Economics and Management, at the Faculty of Economics, University of Belgrade. The key areas of her scientific interests and research are systems thinking, organizational cybernetics, systems methodologies for structuring the complex and pluralist management problems in organizations, soft and critical management science. Management Journal for Theory and Practice Management 2012/62 Milica Đurović Telekom Serbia Human Resources Management Strategic Aspect UDC: 005.96 DOI: 10.7595/management.fon.2011.0006 This work emphasizes the importance of the new, modern role of human resource management in achieving objectives of companthe companies that tend to be highly adaptable to the demands of their environment and consequently achieve high competitive advantage. In this range of demands, human resource management has to realise its transformation objectives, so as not to become the area and factor of disturbance in functional and team activities of the company. Such changes in human resource management, in the first place, are to be realised in the competences of human resource managers, their knowledge and abilities to stimulate creative and innovative capability of employees. Keywords: menagement human resorces,strategy, adaptable, competitiv advantage, ransformation objectives 1. Introduction Challenges of transformational changes of modern times provoked the real need of a man to think and makes decisions strategically. If a man is our greatest treasure, then knowledge is the greatest treasure to a man. The sa trategic activity assumes a minimum knowledge from different areas of managing companies. Company success is realized with an optimal combination of structure, system and value, and all of them are created and maintained by employees and their creative and innovative ability. That is why human resource management is an integral part of strategic management. In the chain value, its activities are the ones of a vital support. Strategic importance and orientation of human resource management has a multi-factor influence on improving the competitive advantage and position of the company. It is already generally accepted in the theory of strategic management that the knowledge of the employee is the most important resource and key source of competitive advantage. Why is it so? The competitive pressure and the environment can impose the difficulty of ensuring a position, and the position is the heart of the strategy. How to maintain it, how to improve it? The answer is in the satisfied customer. Behind the satisfied customer is the selection of the solution (offer) among many offered (competition), which is the result of a successful compilation of knowledge from a number of areas and levels which offer the most desirable product. Man knowledge - information are the crucial points of orientation of modern human resources management. Orientation towards human resources has become economical necessity.1. There are high interdependencies between strategic management and human resource management in two phases: a) strategy shaping and selection (organizational and business); as well as in the phase of b) strategy application (implementation). 1 Pržulj, Ž., Menadžment ljudskih resursa, Institut MSP, Beograd 2002. Management Journal for Theory and Practice Management 2012/62 Different strategies require different people and behavior, different ways of selection, rewarding, education and similar. According to the way and principle applied by the company in the aim of achieving competitive advantage, we can speak about generic strategies, which represent grouping of typical (similar) ways which are easily recognizable in shaping and applying. Each of them requires a different strategy of human resource management. Bearing in mind the great importance and influence of Harvard School, here we shall point out two generic strategies, appointed by M. Porter: - cost strategy and - differential strategy The first one, cost, is based on the starting point that value can be made by cost reduction (as a consequence it has price reduction and on that basis the achievement of competitive advantage). The other, differential, is based on the starting point that the value can be made by product and service differentiation, in the manner that achieves higher prices in comparison with the competition. The selection of strategy itself is conditioned by the level and content of the established connection between the human resources management and the business strategy of the company. If that connection is direct and based on causal connection, than it is surely about orientation towards differential strategic option and relying on resource efficiency, before all, human resources. Otherwise, when costs and their reduction are in the focus of business attention, then human resources are considered to be the source of rationalization and in that case the modern concept of human resource management looses in its role and position. 2. Connecting Human Resource Management with strategy The possibility and success of applying the corporate strategy depend largely on conforming to the human resources strategy. Such conforming is not provided only through the development of knowledge, skills and similar, but also with the change of organization culture. In other words the strategic aspect of human resources management brings in the new distinction between this scientific thought and practice, and that is integrative distinction of human resource management. This distinction points to important changes in the access, model and goals of human resources management. First of all, orientation towards strategic managing functions in two directions: - external (competitive), - internal (integrative). External orientation has a competitive advantage as its consequence, and human resources management in it has an aim not to be a limiting factor, but supportive to external competitive strategy. Internal, that is, integrative activity has a goal of a rational usage of internal energy of human resources for the benefit of the external force of the company. These two values react on the connection principle: - the more internal energy spent in solving conflicts of non-conformed structure and people and their relations (low productivity), the less external offer (non-competitiveness), - and vice versa (high productivity competitiveness), the conformity between structure and people, ensured organization success, result in a rational spending and a productive creation of new value. There are four ways of connecting Human Resource Management with the business strategy defined by Paauwe in his book HRM and performance, 2 and they are: a) administrative connection, when there is a very weak connection between strategic orientation of the company and human resource management policy and practice, 2 Paauwe, J , HRM and performance, Oxford University Press, 2004, p. 28. Management Journal for Theory and Practice Management 2012/62 b) one-way connection, which corresponds to personal management in which case it does not take part in the process of strategy formulation, c) two-way connection, which establishes reciprocal connection and balance between human resources management and strategy in which human resources management contributes a lot by formulating the strategy, d) integrative connection, which corresponds to strong connections in which human resources management and strategy equally influence each other, in formal and informal ways. Managers and employees answer their obligations within one system of responsibility 27 The type of established connection depends on: organization type, size, organizational structure, culture and environment itself. The last decade of the 20th century points out the amount of attention which companies pay to the connection of human resources management with the business strategy. While traditional, commanding-controlling companies rely on personnel managers, that only deal with administration, legal and practical problems, organizations with high performances demand from line managers and human resource managers to understand and support productive individuals with outstanding performances that contribute to maximizing the company results. Guests four forms of fitting demonstrate four points of views concerning how connections influence performances (table no. 2).3 Table no. 1 Influence of connections on performances Specific criterion Absence of criterion fitting as a set of best practices fitting as combination fitting as strategic interaction fitting as contingency internal external Source: Paauwe, J., HRM and Performance, Oxford University Press, 2004, p. 31. Fitting as strategic interaction represents a vertical connection between human resource management and strategy. Companies with better responsiveness and fitting shall demonstrate better performances. Organizations whose human resource management reacts better to external factors, environment factors, applies fitting as contingency, that is, relies on the classical contingent access. Fitting as a set of best practices is based on the claim that there is a set of universally applicable best practices which provide best performances as well. Fitting as combination starts with the combination of practices which provide synergy effects according to specific organizational structure and culture which connects them. Developing access with synergy elements of human resources management practice, mentioned in the works of Baron and Creps are extremely important for our research4. The characteristics of this access are the following: - there is a co-existence of employees as individuals, which implies that different elements of human resources management applied to one employee are mutually consistent, - there is consistence among employees, which implies that all employees who belong to the same group (competence, profession, similar jobs) are treated in the same manner, - there is time consistence, which assumes treating employees in the same way, at any moment. 5 3 Guest, D.E., Human resource management, employee well-being and organisational performanse,Paper submitted at the CIPD Professional Standard Conference, University of Warwick, 2000. 4 Ibid. 5 Ibid, p.32. Management Journal for Theory and Practice Management 2012/62 These characteristics are at the same time a recognizable image for every company, because they reflect part of its culture and ethical principles which are incorporated in its organizational climate and system of values realized through internal processes of organization and communications. According to Farndal, maintainable competitive advantage can first of all be realized by - innovativeness. As regards the moment of implementation of innovations, we can identify firms which are leaders or slow players in the market game. Of course, we can also identify human resource management types according to this criterion. Farndal makes difference among the following types of human resources management:6 a) HR leaders in innovations create a competitive advantage by creating, applying and establishing successful human resource management practice. This advantage is gained by a pioneer role in bringing in new practices into human resource managing. An example: McKinsey company has introduced knowledge management, General Electric has introduced competence management, while Unilever has introduced human resource management competence, b) Fast followers achieve an advantage in relation to competition by a faster imitation of the leader and by application of his/her practice. It is the natural way of advantage achievement lower costs of research and development, c) Slow followers are late and they slowly implement the innovations in the area of human resources. They do not take any risk because they take over and imitate the human resource management practice that once came out successful. The support or often the remark on the need to decide on applying successful practice is made by governments, unions and other interest groups. Such fittings do not ensure competitive advantage. It is certain that long-term and maintainable advantage cannot be provided only by innovation - quality strategy, leadership and similar also contribute to it. Example: Philips company is the leader on the market of electronics (invention of CD) but another company, Sony, used this discovery in a better way by concept imitation. That also places before the human resource management a demand for optimal combination of all elements and processes to achieve the synergy effect of a man and other work processes factors. New objectives of human resource management are expressed in the following areas: - developing and strengthening of the process of connection of individual aims with the aims of teams, teams with business aims and company results, - maximizing and developing advantage (strengths) of human resources into performances of competitive advantage of the company, - integration of intellectual abilities, knowledge, motivation and loyalty into a prospective development performance, - strengthening human dimension of organization success, - strengthening participation of executive (line) managers, - permanent comparison between the condition and human resource management performances, determining the GAP in the process of constant benchmarking, - raising internal performances through application of the model of internal marketing 7 , - cherishing and developing innovation strategy in the model of human resources management, that is, supporting changes as acknowledgement of evolutive vitality of the company and human resources, - it is on these foundations that the model of strategic human resources management, is a holistic access which allows for a different philosophy, policy and prectice of human resources. 8 6 Farndale, E, at all, The role of corporate MHCS: The interplay between Corporate,, Regional/National and Plant level, Cornell University, 2004. 7 Ðurović , M., Strategija internog marketinga u upravljanju ljudskim resursima, Printing Centar Telekom, 2008. 8 Barjaktarević- Šiber, F., Menadžment ljudskih potencijala, Goldenmarketing, Zagreb, 1999, p. 137. Management Journal for Theory and Practice Management 2012/62 Figure 1 Model 5 - P of strategic human potential management Source: Barjaktarević-Šiber, F., Menadžment ljudskih potencijala, Golden marketing, Zagreb, 1999, p.137. With this, we want to point out one more important role 24 of human resource management in the conditions of strategic managing in the company. This role comes out from the special status of the strategy implementation Phase. Company strategy which is aimed, intended, established by the decision, is implemented by lower executive structures of the company. That phase expresses the gift of a man to produce the new idea, which is often better than the established. It is the unforeseen strategy which is born on that level and it often provides an extra effect a competitive advantage. The new role of modern human resources management is emphasized exactly in this effect, that is, to activate and connect the processes which bring together creativity and innovation processes. Effective internal communication ensures the efficiency of new ideas and strategies. These approaches also demand a new, modern human resources expert, partner and team member in the implementation of strategic management. 3. Human Resource Manager strategic partner Transformation changes of human resource management have basically an internal presumption competitive expert and human resource manager. Specialist knowledge gives way to a wide competitive dimension of human resource managers dimension. This is reflected in the following: - incorporation of the company mission and vision into the mental map of human resources managers, - implemented ability of strategic aims through: - business knowledge and initiatives - organizational knowledge of managing personnel - specialist knowledge and abilities - managing ability, motivation and dedication of process participants. In brief, it is not a factor which is outside activity courses, it is actually a peer creator of conditions and impulses with the aim that an activity, that is, value should be realized. Such human resource manager is an expert, but also a leader who knows how to interpret the basic postulates of his company mission, to implement them into all processes and activities, to create vision from the Management Journal for Theory and Practice Management 2012/62 aspect of human resources position and employ his competences to realize, in business strategy implementation, the synergy effect of connecting structure and people. The tendency in the growth of human resources management transformation activities is the indicator of growth and effectuation of human resources managers as strategic partners in the management team that manages the company. Figure 2 Strategic management of human potentials Source: Bahtijarević-Šiber, F., Menadžment ljudskih potencijala, Golden Marketing, Zagreb, year 1999. Fugures 1 and 2 present the range of fields in which strategic human resource management requires from managers to show and develop their competitive abilities to analyze, estimate, create, conform and change, that is, to adapt quickly and efficiently. Management Journal for Theory and Practice Management 2012/62 Conslusion In accordance with the abovementioned, the modern role of human resources management is recognized in the following range: newly defined aims which this scientific discipline, and practice as well, appoint as direction of relevance, redesigned processes by which it implements its activities and of course, new demands in the palette of managerial competencies of its experts. The basic newly established goals have to be in accordance with the strategic vision and aims of the company, which are as such established in an equivalent involvement of all functional units of the company, that is, the human resources function is no longer the receiver of orders, but an qual participant in making strategic decisions. That, of course, requires new characteristics and structure of processes which are implemented in human resource management. It is about greater participation of transformation processes and less, traditional, administrative processes. Such requests demand not only the development and changes within the human resources management practice itself, but also in its holders and promoters, human resource managers. The indicators of success of such practice and concepts of human resource management are seen in the degree of integrative effect which is fulfilled among the aims of the company and its human resource goals, as well as innovative effect which is acknowledged by a competitive position of the company. REFERENCE [1] Pržulj, Ž., Menadžment ljudskih resursa, Institut MSP, Beograd 2002. [2] Paauwe, J , HRM and performance, Oxford University Press, 2004, p. 28. [3] Guest, D.E., Human resource management, employee well-being and organisational performanCePaper given at the CIPD Professional Standard Conference, University of Warwick, 2000 [4] Farndale, E, at all, The role of corporate MHCS: The interplay between Corporate,, Regional/National and Plant level, Cornell University, 2004. [5] Ðurović , M., Strategija internog marketinga u upravljanju ljudskim resursima, Printing Centar Telekom, 2008. [6] Bahtijarević- Šiber, F., Menadžment ljudskih potencijala, Golden Marketing, Zagreb, 1999, p. 137 Receieved: 08. 2011. Accepted: 03. 2012. About the Author Milica Djurović Telekom Srbija e-mail: milicadj@telekom.rs Dr Milica Djurović took her academic degree at the Faculty of Economics of Belgrade, Department in Kragujevac. In 2001 she completed her master studies at the Faculty of Management Braća Karić in Belgrade. She did her PhD thesis, Development of Human Resource Management in Serbia at the Alpha University in 2010. Currently she works as special aide of the Director General for the human resources area. As a scientific researcher she has published a large number of reports and articles in journals and participated in numerous conferences and symposia at home and abroad. She was also member of project teams and team leader in the company she works with. She is the author of two monographs:Internal Marketing Strategy in Human Resource Management and Development of Human Resource Management in Serbia Indicators. Management Journal for Theory and Practice Management 2012/62 Goranka Knežević1, Vule Mizdraković1, Nada Arežina1 1 Faculty of Business in Belgrade, Singidunum University Management as Cause and Instrument of Creative Accounting Suppression UDC: 657.632 ; 658.14/.17(047.32) DOI: 10.7595/management.fon.2012.0001 The topic of this research refers to creative accounting, the causes of its presence in modern market economy and possible instruments of fight against its further expansion. The problem of creative accounting is mostly dealt with by foreign authors, while a theoretic concept in the Republic of Serbia is still at its early stage. Therefore, in the first part of our paper we will present the reader a notion of creative accounting and the basic methods of its implementation in modern business practice. We will present the results of the research considering basic causes of, according to the opinion of interviewed persons, more and more frequent examples of illicit creative accounting in the composition of financial reports of economic entities in the Republic of Serbia. On the basis of current literature and research results, we will analyse whether auditing is one of the key instruments in fighting a wider implementation of illicit creative accounting. Key words: illegal creative accounting, management, auditing. 1. Introduction In the last decade, Republic of Serbia has, as a state in transition, faced the adoption of international standards in the area of accounting and auditing. What emerged as a problem in the implementation of these standards was a multi-decade justification of economic entities management for the use of illegal accounting techniques in composing financial reports. The reasons to justify the application of these processes were: a high inflation rate, severe conditions in market economy, the fact that introduction of market economy was in its initial stage and that the process of transition was still on-going. However, can we really accept the aforementioned reasons in the modern market economy, or do these serve as a front to protect the interests of economic entities management? Therefore, an analysis of the main causes for the use of creative accounting will be the first part of our research, where the following are set as hypotheses: H1: The basic causes for the use of illegal creative accounting are unethical demands of economic entity management. On the other side, the quality of financial reports does not depend entirely on those that compose them, but razher on the persons in charge supervision of their regularity. Frauds and intentional presentation of incorrect information are becoming increasingly important in the process of financial reports auditing. The question is raised: is the process of auditing sufficient to detect a potential illegal creative accounting and up to which degree the options for its possible appearance can be prevented? In accordance to this we will present the second hypothesis: H2: The basic instrument in suppressing illegal creative accounting is auditing performance with due professional attention. According to the defined hypothesises we will present the structure of our paper. In its first part we will clarify the notion of creative accounting as well causes of its occurrence. In the second part, we will mention the methods of creative accounting as well as a general attitude of auditors towards its use. In order to explain the basic causes of creative accounting use and suggest possible instruments of its suppression, in the final part we will present the results of the research. Management Journal for Theory and Practice Management 2012/62 2. Notion and causes of creative accounting Researching this area we have concluded that accountants and employees in economic entities are generally familiar with the concept of the use of accounting policies to gain economic benefit. However, it is not rarely that this phenomenon is not linked to the term creative accounting. Therefore, in the first part of this paper we will present the notion of creative accounting and causes leading to its use. There are different definitions of creative accounting, but they all refer to the same or have similar meanings: tax smoothing, cosmetic accounting and financial engineering. This term means the process where accountants are using knowledge of accounting principles to balance positions and their values presented in financial reports. There are other definitions, and we are quoting one of them: It includes successive selection of accounting methods in financial reporting in a unique way, having the effect of insignificant variations in presented incomes from period to period. [3], p. 101. Common to all these definitions is that creative accounting is used by accountants in order to transform accounting values applying legally permitted accounting selections in evaluation of values and other practices. A majority of authors in the field of accounting and financial reporting perceive creative accounting as a phenomenon which is a routine one and which can be often found in practice, but consider it the activity having a deceptive effect and, generally speaking, an undesirable one. The authors in this area mostly agree that creative accounting gained in importance by separation of proprietary and management functions in economic entities. The relation between the proprietor and the agent (administrator, manager) is explained by the agency theory. Namely, it is assumed that both the ordering party and the agent tend to maximize the benefit for themselves. That means that the manager will act in the interest of the owner only when that is his/her interest too (see /6/, p.28). The costs of financial reports composition as well the costs of their auditing could be considered as the costs of agency theory existence, while other costs can also be bonuses paid by owners of economic entities to managers in order to attract them to act in their interest. Also, the goals of economic entity management and employees can be in collision, particularly having in mind the use of illegal creative accounting as an instrument to meet the interests of economic entity management. In modern market conditions we can find reasons for the presence of creative accounting in the valuation of stocks of open joint stock companies in capital markets and stock exchanges. Economic entities tend to produce a more balanced presentation of results for the accounting period, trying to avoid significant discrepancies and deviations from the expected or usual value of financial results. This can be achieved by the so-called results smoothing where an economic entity will capitalize as more as possible costs of assets procurement and compensation of costs related to assets maintenance in years when the financial result is lower than expected. Furthermore, when assessing the value of assets for which the revalorization model is used, the economic entity can select several values among the offered ones, creating latent reserves that can be used in the current or following years. This method of creative accounting is particularly used with open joint stock companies since it enables a lower influence of the published financial result on the amount of the stock price for the quoted economic entity. It is well known that the publication of negative financial results or significantly lower ones in the previous accounting period results into a negative stock price fluctuation for this economic entity. Also, this method of creative accounting is particularly appropriate if persons authorized to manage the economic entity consider that publication of a financial result more favourable than the average could influence the stockholders assembly to distribute the earned profit to capital owners in the form of dividends. The achieved financial result not significantly deviating from planned one is often a demand set before persons authorized to manage the economic entity; by this the management demonstrates its ability to manage and control the financial result. Creative accounting in this case can appear as the application of allowed methods in manipulation of achieved incomes and expenses recognition in a given accounting period. Namely, accounting principles require an allocation of accrual base for accounting to accounting periods when realized, that often opposes to the expectations management and owners of the economic entity can have regarding the results of a certain project or investment. However, the line is thin between the use of this method of creative accounting and an act which is according to the International Auditing Standards defined as a criminal act: (...) is intentional act committed by one or more persons who are in management positions in auditing client, responsible for management of auditing client, employed by auditing client or by a third person, including also a deception in order to gain unfair or illegal profit [8], p. 43. Illicit manipulation with recognition of the accrual base of accounting is one of the most common criminal acts in the history of Management Journal for Theory and Practice Management 2012/62 accounting. We are presenting the example of Enron who used this method to illegally present the sale incomes in an amount of over 100 billion dollars [11], p.25. Furthermore, the company WorldCom incorrectly recognized the sale incomes in financial reports in the value of over 958 million dollars [11], p. 7. The management of an economic entity can use methods of creative accounting also in the case when it wants to indicate to all users of economic entitys financial reports undesirable news or published information. The example is the K-mart company from the United States of America (USA) which presented its financial result as higher by almost 160 million dollars in order to moderate the effect of the information that it was named as the second largest commercial chain in USA [1], p. 8. Hence, we have to have in mind that an experienced investor or stock exchange broker will see through the intention of an economic entity and understand the presentation of improved financial report as a sign of covering its weaknesses. Authors such as Niskanen, Herman and Keloharju indicate that one of the basic motives for the use of creative accounting is also tax payment evasion. With the Enron collapse in 2001, attention is focused upon the truthfulness and fairness of reporting, depending on whether the mistake in reporting has a fraudulent intention or it is accidental. Today, auditors are obliged to evaluate the effectiveness of economic entity management in prevention of potential frauds. Moreover, auditors should be more proactive in fraud research, i.e. they will have to assess a possibility for illicit actions. Of course, collaboration and communication among all members of the auditing team is necessary. As regards the independence of an auditor, this principle was also redefined after the collapse of Enron when a significant number of services earlier provided by auditors to their clients were forbidden, and changes related to accountability of auditors were also made. 3. Creative accounting methods Creative accounting can appear even in highly regulated economic systems. International Financial Reporting Standards (IFRS) are considered more rigorous than the American accounting principles (GAAP) regarding the issues of methods selection for the composition of financial reports. Hence, the IFRS give an opportunity to the management of an economic entity to select through accounting policy the method of values assessment for real estates, plants, equipment, real estate investment, nonmaterial investments and financial instruments that will be used: the method of procurement expenditures or the revalorization method. In case of high value assets, the change in the valuation method can significantly impact the financial result of the accounting period, and the economic entity can very simply explain the reasons and justify the change in the valuation method by modern market business where values, particularly values of real estates, are increasing daily. The American accounting principles, composed under a significant influence of the common (precedent) law, leave sufficient space for creativity in the selection of methods, and in certain cases certain economic entities are also allowed to apply methods which are not otherwise allowed [11], p.14. Certain areas of financial reporting are not fully regulated, such as the registry of financial instruments particularly the options. Actually, all changes in the International Financial Reporting Standards during the last three years are directed to the regulation of recognition, valuation, presentation and publication of financial instruments. Fictive transactions can be posted in income statement in the current period in order to manipulate values of incomes positions, but can be also used to redirect the profit from one period to another. For example, an asset can be sold to another economic entity and then it can be leased from the very same economic entity. In that case, the sales price can be presented as significantly higher than the purchase one and thereby a positive difference or profit is made. It is believed that fictive transactions are particularly frequent in the states of Europe, while slightly rarer in the American English language zone. In real transactions manipulation can be made to recognize them in an accounting period where it is necessary to achieve certain goals. For example, if the objective is to reveal a less favourable financial result, in current year an economic entity can entirely expend certain assets which are anyway planned to be expended in the next or forthcoming years. The reclassification or different presentation of assets, capital and liablities as balance-sheet positions is relatively recently recognized as a method of creative accounting. The International Accounting Standard 1 Presentation of Financial Reports, underlines that in the income statement the management must distinguish between short-term and long-term assets. One of the basic criteria for such demarcation is also the intention of an economic entity to sell the subject asset or liquidate it in a period shorter or longer than the accounting period. A complicated and maybe impossible task is set before an auditor who must prove that Management Journal for Theory and Practice Management 2012/62 the economic entity had the intention to sell a certain asset when composing a financial report. On the other hand, the asset is presented in the balance sheet as a short-term asset increasing the value of denominator in the calculation of a general ratio of liquidity. 4. Attitude of auditors towards use of creative accounting Auditing as a systematic review of financial reports is the key role in the business of economic entities, as well in the functioning of the whole economy. Auditing services have changed rapidly in last tenth years. Auditing goes through a significant development and changes after the globalization phenomenon, as well as after the emergence of the need to harmonize financial reports. Change covers not only application of standards in preparation of financial reports, but also includes a professional dedication of an auditor within the whole process of auditing. At the beginning, the basic function of auditing was an accounting registry at the state level. However, in XVIII century it evolves and gets in importance as a method to detect frauds and misuses within financial accounting. As previously mentioned, that is the period when two functions within an economic entity were created: proprietary and management. The owners of economic entities had a need to control and overview the work of persons authorized to manage. At the beginning of XX century emerges the auditing known to us today as external or independent financial reports auditing. The owner of an economic entity or management authority deploys an external auditor whose task is to check whether financial reports are composed in accordance to proper principles and standards, and whether they present the image of this economic entity truthfully and objectively. Having in mind that there is a need and requirement for economic entities to perform auditing once a year, the period of time in which an external auditor has to provide auditing evidence and give his/her opinion is particularly short. Having the previously mentioned in mind, auditors apply certain methods and statistical sampling in order to avoid detailed and comprehensive check of auditing clients registries. A detailed and full check is performed only in extreme cases, when criminal act is detected or materially significant mistake has been made. Especially if it is a matter of economic entitys property assessment because, according to the International Accounting Standards, hiring of professional assessor of property is not required for the assessment of the property value [6], p. 33. As mentioned above, auditing should focus on the following: fraud detection, disclosure of technical mistakes and disclosure of non-observance of accounting principles (see [5], p. 7). It is obvious that auditing has gone through several development phases and today it addresses the complexity of information needed by users of financial reports stressing not only their credibility, but creating additional value referring to reporting of irregularities, discovering business risk as well advising management of potential weaknesses of internal control. We can say that the current role of auditing is expanded in relation to the former one, and some changes relate to three main aspects: · Scope regarding detection of fraud and mistakes; · Basic characteristics of auditors independency; · Accountability of an auditor [4], p. 10. It is our opinion that the change in the role of an auditor indicates their more proactive role, as well underlines a greater value of reporting itself. With changes and greater expectations of economic entities, the level of relying to financial reports increased too, leading to change in expectations offered by the process of auditing. It implies that auditors themselves must be aware that persons authorized to manage an economic entity can have a motive to use more aggressive methods, and that they have to be more cautious while assessing whether financial reports are presented in a fair manner in such situations. However, the question is raised: up to which degree the regulations and codes of conduct affect the formation of auditors awareness and their personal ethical principles. Professional accountants code of conduct is divided in two parts by many authors, where first part should have significant impact to the formation of awareness of fairness and morality of professional auditors and accountants. However, it seems that this is not the case, because the code of conduct rather indicates qualities and characteristics auditing and accounting services must reach than the process of ethics itself. This can be also concluded from the basic objective of auditing, and that is, as we have mentioned, to provide the auditors opinion whether the financial reports represent a fair image of financial situation in an economic entity, and not to judge whether the reports are composed ethically and nor whether the behaviour of management is ethically correct [7], p 4. On the contrary, an auditor makes his/her opinion on auditing evidence which must be sufficient and adequate and which is subject to their correctness and truthfulness analysis, while ethics has little impact in this process. Management Journal for Theory and Practice Management 2012/62 According to our findings, none of the International Auditing Standards, nor Generally Accepted American Auditing Standards deal with the analysis of an auditor regarding ethics of persons authorized to manage an economic entity and a possible reporting of observed examples of non-ethics. It is mentioned that an auditor has to be professionally sceptical about persons authorized to manage, that he/she must not believe their honesty, but it is not mentioned how an auditor should act in the situation when he/she considers persons authorized to manage are not ethically oriented; if it is necessary to withdraw from auditing or to disclose the information in his/her auditing opinion. It can be confirmed that auditors and accountants start the business with an already formed dose of ethics and morality and that a later impact of the profession and regulations have a relevant impact on their level of ethics. A justified dilemma imposed against the theory, but also against practice, is: should an auditor be concerned with activities of persons authorized to manage if they infringe only principles and rules of ethics but not the accounting regulations. 5. Research methodology and results In order to explain whether the economic system in our country justifies the application of creative accounting, a research was conducted at the level of the Republic of Serbia. The research itself lasted during the period May mid-October 2011. The basic methods of data collection were questionnaires fulfilled by respondents in the mentioned period. The research includes gathering primary data which are considered more relevant than the data from the already conducted researches. The Software Solution SPSS (Statistical Package for the Social Sciences) as a statistical programme for data processing was used as an instrument of data processing. Employees responding to the survey perform the function of accountants, internal auditors or are members of economic entities management. The research was conducted in 147 economic entities of which 32 responded to questionnaires, that is 21.77% of the total sample. The previously mentioned rate of responses is considered solid for this type of questionnaire. Hence, a great number of economic entities did not want to respond to the survey in spite of insisting, where resistance of polled persons was obvious. However, the submitted survey leave an impression of sincere responses to set questions, and a couple of surveys also contain comments to set questions as additional suggestions of topics to be considered in one of future scientific papers. The research was performed in the largest industrial cities of Serbia. Table 1. Presentation of economic entities in survey by business activity and geographic location Towns  Activity e d a r g l e B d a S i v o N a c i t o b u S o v e j l a V j o b i r P a k č a j n r V a j n a B š i N e c i ž U o v e č n a P i d [ Banks Spare parts shops Beauty parlours Public sector Pharmaceutical industry Construction industry Commerce sector Marketing agencies Fashion industry Auditing agencies Alimentary industry Insurance companies Manufacturing industry Education Textile industry Consulting agencies Oil products and derivatives production Total        o v e r e d e m S l a t o T   Management Journal for Theory and Practice Management 2012/62 In order to verify the previously defined hypothesis, respondents were asked to list the most frequent ethical causes of creative accounting occurrence in Serbia. The results are presented in Chart 1. Chart 1: Most frequent causes of creative accounting occurrence in Serbia We consider it necessary to stress that 27 polled persons, i.e. around 84% of the sample, consider the main cause of creative accounting use to be the impact of economic entity management using it to make certain economic benefit for the economic entity. Out of 15 polled persons performing function of accountants in economic entities, even 13 consider the previous mentioned cause the most frequent one in practice. Chart 2 presents the results of the respondents answers to the question of whether they think that creative accounting is an increasingly present phenomenon in modern business. Chart 2: Frequency of creative accounting occurrence in practice It can be concluded from the above presented chart that the majority of polled persons consider the application of creative accounting increasingly frequent in practice which stresses the significance of illegal creative accounting as a problem in the accounting profession. Having this in mind, we thought it would be important to get the opinion of respondents on the possibilities of creative accounting full suppression in practice. The results are presented in the following chart. Chart 3: Is creative accounting a problem that can be fully eliminated? The previously presented results indicate that it is once again confirmed that application of creative accounting is present in business of economic entities in the Republic of Serbia to a significant degree and that most of the respondents included in the conducted research deem that it cannot be fully eliminated in practice. Hence, it is obvious that the application of adequate instruments can decrease its widespread use. The respondents were asked which instruments, according to their opinion, have a most effective impact. Management Journal for Theory and Practice Management 2012/62 As we have previously indicated, the quality of financial reports mostly depends on the quality of performed auditing, because this gives attestation of correctness to the composed reports. Chart 4: Impact importance of certain instruments in suppression of creative accounting Hence, the results show to the contrary; the respondents think that auditing performance with due professional attention as an instrument of fight against illegal creative accounting has a negligible or insignificant impact. The improvement of economy conditions is considered the best instrument to be used leading to the conclusion that polled persons think that the use of illegal accounting is the consequence of bad economic entitys business conditions. Having in mind that the final result of illegal creative accounting use is the economic benefit, it is logical to think that the need for illegal creative accounting would disappear if economic welfare existed. The second in view of the importance of impact are accounting regulations, i.e. the legal stipulation and mandatory application of the International Financial Reporting Standards. Conslusion We cannot but conclude on the basis of the results of the research that creative accounting is a phenomenon present in companie to a significant extent. Hence this is the area of accounting rarely mentioned in domestic literature. We notice that our respondents, although daily facing illegal application of accounting methods to achieve certain economic goals, do not recognize this phenomenon as illegal creative accounting. The results of the conducted research verify that most often the cause of illegal accounting application is the demand of the economic entity management to earn economic benefits. It can be concluded from the previously stated that accountants are probably in an unenviable situation and therefore they see application of illicit creative accounting methods as a daily obligation to execute the orders of the economic entity management. It seems that employees in accounting or accounting agencies do not consider the use of illegal accounting as breach of ethical accounting demands, but the way of certain economic entities business. During the research, considering the respondents as owners of private accounting agencies, we came to the conclusion that they suppose that they will not be employed again if they do not meet the clients expectations considering the disclosure of financial results. We believe that the previously presented problem has to be solved by an additional education of economic entities owners on the goal of accounting and auditing of financial reports. The second hypothesis in our paper was not verified by the research results, because financial reports auditing with due professional attention is considered by our respondents an instrument which insignificantly impacts the suppression of illegal creative accounting. The improvement of economic conditions and legal regulation of this area of accounting has the most significant impact in the opinion of the respondents. Hence, after the analysis of amendments of the Law on Accounting and Auditing currently effective it was noticed that insufficient attention was paid to the regulation of illicit use of accounting methods for the purpose of economic benefit gaining, and therefore no significant improvement for legal regulation of illegal accounting use can be expected. On the other hand, having in mind that the Republic of Serbia is in the process of transition, currently in negotiations on the status of a candidate for a full membership in the European Union, and that public generally expect improvements in the economic conditions in the forthcoming period, we presume that the need for implementation of illegal creative accounting in daily business will decrease. Management Journal for Theory and Practice Management 2012/62 LITERATURE [1] Amat, O., Blake, J. and Dowds J., The ethics of creative accounting, 2004. Text available at: http://econ papers.repec.org/scripts/search/search.asp?ft=the+ethics+of+creative+accounting [14.04.2011.] [2] Amat, O. and Gowthorpe, C., Creative accounting: nature, incidence and ethical issues, Economics Working Papers with number 749, 2004. Text available at: http://www.econ.upf.edu/docs/papers/downloads/749.pdf [06.05.2011.] [3] Copeland, R.M., Income smoothing, Journal of Accounting Research, VVI, Supplement, str. 101-116, 1968. [4] Cosserat, G., Modern auditing, John Wiley&Sons, Ltd, London, 2008. [5] Dicksee, L., Auditing: A practical manual for auditors, Gee & Co, London, 1982. [6] Gowthorpe, C., Upravljačko računovodstvo (Management Accounting), Datastatus, Belgrade, 2009. [7] Knežević, G., Analiza finansijskih izveštaja (Analysis of Financial Reports), Singidunum University, Belgrade, 2010. [8] Petrović, Z., Međunarodni standardi revizije (International Auditing Standards), Singidunum University, Belgrade, 2008. [9] Rabin, CE., Determinants of auditors attitudes towards creative accounting, 2005. Text available at: http://www.meditari.org.za/docs/2005v2/Rabin_10__Meditari_Vol_13_No_2.pdf [05.05.2011.] [10] Sredović, J., Komentar Zakona o računovodstvu i reviziji (Commentary of the Law on Accounting and Auditing), Poslovni biro, Belgrade, 2006. [11] Thibodeau, J.C. and Frier, D., Auditing and accounting cases - third edition, McGrow-Hill companies, New York, 2011. [12] Usurelu, V., Marin, M., Danaila, A., Loghin, D., Accounting ethics responsibility versus creativity, Petrosani: Annuals of the University of Petrosani, Vol. 10, 2010. [13] Whittington, R. and Pany, K., Principles of auditing and other assurance services, McGraw-Hill/Irwin, New York, 2008. Receieved: 01. 2012. Accepted: 03. 2012. About the Author Goranka Knežević Singidunum University, Fakulty of Busines in Belgrade e-mail: gknezevic@singidunum.ac.rs Goranka Knežević, graduated at the Faculty of Economics in the field of Accounting. She teaches at the undergraduate level and master academic studies at Singidunum University and at the MBA program of Lincoln University in California and Singidunum University in Belgrade. She has published around 30 articles in national and international journals and has participated in numerous national and international conferences. Vule Mizdraković Singidunum University, Faculty of Business in Belgrade Vule Mizdraković graduated at the Faculty of Economics, University of Belgrade in 2007. in the field of accounting, auditing and financial management. Mizdraković has a Masters degree in finance and accounting at Lincoln University, Oakland, California. He has been teaching assistant since 2007 on several courses in the field of accounting and auditing. Author of several scientific papers; attended several scientific conferences with international participation. Nada Arežina Singidunum University, Faculty of Business in Belgrade Nada Arežina, MSc. In 2008 earned Bachelor degree at Faculty of Business in Belgrade, Singidunum University. In 2010 earned Master degree at Lincoln University, Oakland, California in the field of Financial Management and Investment Banking. She has been teaching assistant since 2008 on several courses in the field of Audit and Accounting and Finance and Banking. Management Journal for Theory and Practice Management 2012/62 Zorica Marković1, Iva Antanasijević2, Branko Ninković3 1Psychology Department, Faculty of Philosophy, Niš, 3SANI Šabac The Relation to Money as a Factor of the Consumer´s Behavior UDC: 659.27 ; 659.113.25 DOI: 10.7595/management.fon.2011.0004 The subject-matter of this paper is to examine if there are statistically significant differences among various types of consumers and their relations to money. The research was conducted on a sample of 150 working population examinees. For examining the types of consumers, the VALS Technique was used, whose author was Arnold Mitchell. VALS is one of the worldwide most popular techniques nowadays, which is used for examining consumers behavior. For examining relationship to money, Money Ethic Scale was used that was created by Thomas Li-Ping Tang. Affective, behavioral and cognitive relations to money are defined by that Scale. Gender, age, education and income amount of the examinees were used as control variables. The results show that, generally, there are statistically important differences among various types of consumers and their behavioral and cognitive relations to money and that only among certain types of consumers, more exactly, between the Thinker and the Careerist, as well as between the Thinker and the Ambitious, there are significant differences regarding their affective relation to money. Regarding the control variables, among the examinees of different gender and with different income, there are no differences in their relation to money, while among the examinees of different age there is difference in the behavioral relation to money, and among the examinees of different education there is difference in the cognitive relation to money. Key words: type of consumer, relation to money 1. Introduction Consumerism is a complex category. It has a social, economic, technological and cultural character, but also a psychological one, considering that we are talking about the satisfaction of human needs. Numerous factors determine consumer behavior. A consumer is a human, and thus, it is necessary to know his needs as well as possible, in order for them to be fulfilled as completely and humanely as possible. The satisfaction of human needs is one of the more important requirements for human participation in the development of a society. With the development of productive human strength, the living standard increases, the needs of individuals, and the individuals tastes become more subtle. Most of them contribute to the true development of man, that is, his strength and abilities, while some, on the other hand, hinder development, and oftentimes also have negative consequences on human health, both physical and psychological. That is why the study of consumer psychology is very important. It can in many ways contribute not only to the needs of people being completely satisfied, but also to focusing the production of goods on these needs. The result of that is a more rational production. In addition, man is more prepared to work when his needs, especially his vital needs, are satisfied more fully. The possibility of satisfying ones own needs motivates man to do and to create. Naturally, we should understand that the producer and the consumer are one and the same entity. [1] The behavior of the consumer in addition to economic and social factors such as culture, subculture, reference groups, family, and lifestyle is also determined by psychological factors, needs, motives, character features. Viewed more narrowly, as stated by Milisavljević, the behavior of consumers is conditioned by personality, products and the specific nature of a situation. [4] The personality is a complete system which includes numerous cognitive, motivational and emotional processes, as well as beliefs, prejudiceS, aspirations, expectations, opinions, which contributes to the shopping process being very complex and to the fact that Management Journal for Theory and Practice Management 2012/62 it should be looked at from several aspects. The analysis of the behavioUr of consumers has two basic functions - a diagnostic and a predictive functions. In the first case, a better definition of the market segments is made possible, while in the second one, a contribution is made to the understanding of the future behavior of the consumer. The subject matter of this research is the connection between the relationship towards consumerism and the relationship with money, that is, whether the participants who display various types of consumer behavior have different relations towards money. 2. Theoretical framework The VALS system was created by Arnold Mitchell in 1978, with the intention to examine and explain the changes in the values, habits and the lifestyle in the USA during the 1970s. It is an attempt to understand the current trends in consumerism. VALS is a pioneer attempt to use psychology in management and marketing research. The VALS program in 1978 was formally named as the international product of the SRI (Stanford Research Institute) and was praised in Advertising Age magazine as one of the 10 best market studies of success in the 1980s. Originally, the VALS system was based on social values, but over time the VALS system became increasingly based on psychological characteristics. VALS was in theory based on the Maslows hierarchy of motives and Rismans division into those who are dominantly aimed at the internal and those aimed at the external world. This is the essence of his idea of the man focused on others, a character that is constantly sacrificed to demands, expectations and the fads of others. While the Maslows hierarchy of motives gives a closer description of the primary motivation of various consumer types, the Rismans theory gives a wider view of a consumer as a sociological and cultural phenomenon. [8] Consumers buy products and pay for services and seek experiences which fulfill their character preferences and give shape, essence and a sense of pleasure to their lives. Mans main motivation determines what is personal in a man, which is the important essence guiding a persons activities. According to the VALS, consumers are guided by one of three primary motivations: ideals, achievements and self-expression. Consumers who are mainly motivated by ideals are guided by knowledge and principles. Those who are motivated by achievements seek those products and services which they use to show their success to their peers. Consumers who are motivated by self-expression crave social or physical activity, diversity and risk. Today the VALS concept, as a standardized technique, has a wide application in the world, primarily for marketing purposes, so that we could study the behavior of consumers. Doing the test, the respondent gets not only an estimate of his relationship towards consumerism, but also a more precise information regarding which type of consumer he belongs to, which primary and which secondary type. The primary VALS type is a group of behavioral characteristics according to which an individual has the strongest affinities, that is, an individual of the primary type shares the most common characteristics. The secondary VALS type is the type which the individual, after the primary one, resembles the most. Managers use the VALS primarily in order to understand why consumers make certain choices during purchasing. Using VALS can be understood as the motivation which moves the consumer behavior. In this way marketing experts increase their chances on the market. The original VALS technique has suffered criticism and has been revised as the VALS-2 variant which classifies consumers into eight groups, on the basis of psychological factors and their readiness to shop. Using psychology in the analysis and prediction of preferences and the selection of consumers, the current VALS system creates an explicit connection between character features and behavior during shopping. The VALS concept classifies consumers into types based on whether what is important for them is only to ensure a safe life or to realize certain greater goals ; whether they are prone to innovations and risk; whether they are focused on each other or on others, etc. Different types of people manifest differences in consumerism. The concept suggests that psychological motivation and a source of income, for many consumers, is what finally determines their behavior. VALS consists of 8 types, including: Innovators, Thinkers, Careerists, Adventurers Traditionalists, the Ambitious, the Practical and Fighters. [5,8] Management Journal for Theory and Practice Management 2012/62 Innovators are successful, sophisticated people who take on responsibilities, and have very high opinions of themselves. They are the leaders of change and are most open towards new ideas and technologies. Innovators are very active consumers and the products they buy reveal refined taste, attractive products and services. Appearance is important for people like innovators, not as proof of their status or power but as a reflection of their taste, intelligence and personality. Innovators are among leaders and among those who are yet to become so in business or in government, but they are still on the lookout for new challenges. A characteristic of their lives is diversity. Their belongings and their recreation express refined taste. Thinkers are motivated by ideas. They are mature, content, free, relaxed people prone to thinking, who value work, knowledge and responsibility. They strive to be well educated and actively seek out new information in the decision making process. They are well informed about the world as well as about national events, but also use every chance to preserve the status quo in the case of institutions with authority and social norms. Despite that, they are open to considering new ideas. Even though their income allows freedom of choice, thinkers are conservative and practical consumers, they look for permanence, functionality and value in the products they buy. Careerists strive for achievement in their careers. Considering the fact that they are motivated by a desire for achievement, this type of people, that is, of consumers, are characterized by a life with a purpose and deep commitment to ones career and family. Their sociability reveals this dedication and focus on family and work. They lead conventional lives, are conservative in politics, they respect authority and the status quo. They value consensus, stability and predictability in comparison to risk. They respect and preserve their privacy. They strive for self-realization. With many desires and needs, they are active consumers. They value their appearance, favor reputable products which reveal prestige. Due to their many obligations they are usually interested in numerous products which save time. Adventurers are explorers in life. They have a more sensual experience of the world around them. Adventurers are motivated by self-expression. When they are young they are full of enthusiasm and are very impulsive, quickly become interested in new possibilities, but at the same time quickly lose interest in them. They seek diversity and excitement, enjoy the new, different and risky. Adventurers are passionate consumers and spend not insignificant amounts of money on fashion, entertainment and socializing. What they buy usually reveals a desire for looking good and having cool things. Traditionalists, like thinkers, are motivated, that is guided, by ideals. They are conservative and conventional people with firm beliefs which are based on traditionally determined norms: family, religion, community and nation. Many traditionalists express moral norms which are deeply ingrained and which they stick to rigorously. They follow a set routine which refers primarily to their home, family, community, the social and religious organizations they belong to. As consumers, traditionalists are predictable, they select well-known brands and established brands. They favor national brands and are generally loyal consumers. The ambitious consumers are those who try very hard to achieve something. This type of consumer likes to be trendy and likes entertainment. Because they are motivated by achievements, they take into consideration what others think of them and whether they have their approval. For them money is the definition of success, but they do not have enough of it to satisfy all their desires. This type of consumer is active because shopping for these consumers is a social activity and a chance to show their peers and colleagues their shopping abilities. They favor products of style which people with greater material wealth can afford. They are very impulsive consumers, if their financial situation allows it. The Practical consumers just like Adventurers are motivated by self-expression. They give themselves up, and experience the world by working on it, building houses, raising children, fixing cars or growing vegetables. At the same time they have enough skills and energy to bring projects to an end very successfully. They are practical people who have constructive abilities and appreciate it when someone is self-sufficient. They live within the confines of traditional values, are tied to their families, manual labor and physical activitiesrecreation. Few things outside this frame interest them. They are suspicious towards new ideas and big institutions such as big business and companies. They respect the authority of state institutions and organized work, but are often disgruntled due to state assaults on the private rights of individuals. They are not impressed by material possessions, except those which have a practical or functional value. Considering the fact that they prefer value and quality in comparison to luxury, they only buy basic necessities. Management Journal for Theory and Practice Management 2012/62 Fighters are individuals who fight to survive. These people usually live by being focused narrowly on something. They feel comfortable with what is familiar to them. Their primary concern is safety and security. Because they have to be focused on how to satisfy their needs, these consumers do not show strong primary motivation for spending. They are careful consumers. They represent a very humble market for most products and services. They are loyal to their favorite brands, especially if they can shop at a discount. Money is often a taboo topic. It is often easier to speak of sexual preferences than about money. Money has a very wide meaning, it is not just paper or metal which brings benefit and does favors for us, it includes an entire range of emotions, motivations and behaviour, which have to do with ones attitude towards money. Madanes [3], in the book The secret meaning of money, ends the silence on the power of money and presents the facts regarding how money is used to express desire, to show a longing for belonging, a desire for power, a need for revenge and retaliation. The relationship towards money is determined by many aspects of life. Every individual, from his past experiences, carries some financial messages. Financial messages reflect ones attitudes towards money, perception and expression which influence ones current behavior towards finances. The power of previous experience and deeply ingrained belief about money is clear. Once an individual questions the messages regarding money, both conscious and unconscious, it becomes possible for him to better understand blocks and models which lead to his financial decisions, not only financial but life choices. Deborah Price [7] points out that money means different things for different people. For many people, money is what you can do with it; for others it is a measure of their identity; a measure of their personal work etc. The more the money, the better people feel, they feel more like themselves and vice versa; the lack of money makes people feel not as strong or even miserable. The question imposes itself of whether the revelation that some people have more money than others is because of the fact that they manage their funds better or whether money on its own is responsible, and that since they have enough, it is much easier for them to manage it. In personal relationships, money is often a source of conflict. David Schwartz [9] claims that money can absolutely be one of the life goals. He even dares say that it is often difficult to become a successful and complete person if money and financial security are not set as one of the goals in life. Someone might say that money ruins people or that it is the source of all evil. People are corrupted by it or without it and it is not the source of all evil, but of love of money and the readiness to do anything for it, as it says in the Bible, which gives a completely different meaning. Money is neither good nor bad. Only the way in which it is used can be good or bad. A person claiming to want to be poor must in general be suffering from a sense of guilt or inadequacy. The plans of hard-working men inevitably lead to wealth. When we talk of money, this means not only the amount of money in ones possession, but also the feelings related to money, because the way in which we speak of it to a great extent shapes us, more than we can assume. In some periods of time we have enough of it, and yet at other times we do not. But money is also very important as an emotional, psychological and symbolical entity in our lives, and thus for each of us holds a special meaning, emotions and experience towards it, as the psychotherapist Kate Levinson claims. [2] She believes that all our emotions regarding money can be catalysts for personal transformation because the relationship towards money has to do with all the aspects of our lives, and extends deeply into parts of our psyche, including our needs, fears and desires. Jacob Needleman [6] points out that money is actually very useful, but if money feeds the ego, which it usually does, then we need to be careful. This is where the madness lies. And this is precisely what the Greek tragedies tell us they speak of arrogance, and that is a part of the problem with money. Money is great, money is power, money is beauty. Money is love and relationships. It is a magnificent force which binds people but which also separates them. We cannot escape from money. If you run from it, it will chase and hunt you down. If we do not understand the relationship towards money in todays culture, then we are doomed to fail. If we do not know how to take a stand towards money and we do not understand this relationship, then we simply do not know ourselves. If we have a lot of money, do we have to worry more about the basic life necessities? Does this not liberate us? No. If we worry about vegetables now, then we would be worried about yachts. This lies inside of us, not in money. Barbara Price [7], the author of the book Money Magic, speaks about several of the basic styles of dealing with money, that is, of the basic types of people. The Sorcerer is spiritual, wise, conscientious, reliable, dynamic, strong, optimistic, open, financially balanced, lives in the present, alters reality, speaks the truth, can handle money, and it is not a problem for him to get money. The type known as Naive is reliable, non-con Management Journal for Theory and Practice Management 2012/62 formist, is followed by lucky circumstances, but has fears and anxiety on the inside, he feels powerless, is pressed upon by feelings, convictions and insecurities, he is financially dependent. A Fighter is strong, competent, disciplined, goal-oriented, calculated, wise, willing to take risk and financially successful. The Victim is too sensitive, vindictive, prone to bad habits, embarrasses others, lives in the past, feels powerless, is financially irresponsible. The Sufferer is self-critical, manipulative, disappointed, passive-aggressive, wise, a perfectionist, caring, controlled in his relationship towards money. The Tyrant is rigid, controlled, manipulative, critical, aggressive, careful, vindictive, overly materialistic. He is thoughtless and undisciplined, optimistic, carefree, lives day to day, is financially irresponsible. The Creative type is artistically oriented, spiritual, passive, not overly motivated, untouchable and is not materialistic. Thomas Li-Ping Tang [10] studied the relationship towards money and for that purpose constructed the Money Ethic Scale which measures three components of the relationship towards money: the affective, the cognitive and the behavioral components. The affective component consists of the positive and negative relationship towards money and requires the manifestation of various emotions regarding money, that is, the experience of money as good or bad, dirty or clean, etc. The behavioural component consists of the readiness of a person in a particular situation to behave in a certain way regarding money. The behavioural component can represent spending, saving or investing money. The cognitive component has to do with the subjective meaning which the individuals give to money. Money can mean achievement, respect, freedom, power. Thomas Li-Ping Tang [11] studied the relationship towards money in America, Great Britain and Thailand. The results have shown that people generally have a positive attitude towards money irrespective of the culture they belong to. Money is always positively connected to economic and political attitudes. He came to the conclusion that Americans understand money as something good, that is, that their affective relationship towards money is very positive and that it is literally used to buy life. For the Chinese, money has a special cognitive meaning, they primarily respect it, while for the British money is the best representation of a persons position in society, as the manifestation of power and strength. As people of various nations experience money differently, there are also individual differences. Money is closely bound to human motivation, behaviour and the way they express themselves. It has been proven that there is a difference in the cognitive meaning of money between men and women. For men money is something that is one of the most important factors in life, which could not be claimed for women. [12] The results obtained indicate that men have a tendency of experiencing money more like respect, freedom and power, than is the case with women. The factor of respect is also bound to the A type of personality, which in psychology is known as the type of personality which has a low level of tolerance to frustration, is prone to stress and usually suffers from ulcers, hypertension and myocardial infarction. The ones who stick to the protestant work ethics usually have a tendency of representing money as an achievement, and as something good. Workers with low organizational stress have a tendency of viewing money as something good. The ones who demand that their budget be safe show a tendency of high self-respect. In addition, those who have more difficulties keeping their budget safe are older and primarily people with a family. In addition, it is assumed that people with high incomes will be more carefree in dealing with money than those with a low income. [13] 3. Research and results The basic aim of this research was to determine whether there are any statistically significant differences between the various types of consumers (Innovators, Thinkers, Traditionalists, Careerists, the Ambitious, Adventurers, the Practical, and Fighters) and their affective, behavioural and cognitive relationship towards money. Since the control variables included the gender, age of the participants, their education and income level, in accordance with them, the goals of the research were set: - to determine whether the participants of different genders differ in their relationship towards money based on all the components - the affective, cognitive and behavioral, - to determine whether the participants of various ages differ in their relationship towards money based on all the components, - to determine whether participants with a different degree of education differ in their attitude towards money based on all the components, - to determine whether the participants with different incomes differ in their relationships towards money based on all the components. Management Journal for Theory and Practice Management 2012/62 The research was carried out on a sample of 150 participants of a working population, of different genders, aged from 25 to 55, with different levels of education and different monthly incomes. Education is divided into several categories: a) elementary; b) high school; c) community college and d) university. The value of the monthly incomes was divided into the following categories: a) less than 10,000; b) 11,00020,000; c) 21,000-40,000; d) 41,000-60,000; e) 61,000-80,000 and g) over 80,000 dinars. The measuring instruments that were used included the VALS technique which includes various types of consumers. To measure the relationship towards money the Money Ethic Scale was used to measure the affective, behavioural and cognitive components, as constructed by Thomas Li Tang. Table 1. The distribution of various types of consumers in the studied sample We can conclude that the most widespread type of consumer is the so-called Ambitious consumer who tries to achieve certain goals in life. The Innovators and Fighters, as was predicted in the very concept of the VALS, are the least frequent in the studied population. - These are the two direct opposite types of consumers, which differ strikingly in terms of their primary motivation and means from the remaining types of consumers. The percentage of the remaining types of consumers in our sample matches, generally speaking, the frequency of the remaining types of consumers in the population, according to the VALS findings. Table 2. Descriptive statistics of the relationship towards money From the table we can conclude that, on an average, the tendency towards the cognitive relationship towards money is the most pronounced and that it is the greatest measure of variability, that is, the greatest deviation from the average values. This means that in the cognitive relationship towards money there is a great variability in terms of understanding money, that is the meaning that the subjects ascribe to it. In order to determine the differences between the various types of consumers and their affective, behavioral and cognitive relationship towards money, the analysis of variance was used, considering the fact that the Management Journal for Theory and Practice Management 2012/62 Table 3. The affective relationship towards money As can be seen from the table, there is no statistically significant difference between the types of consumers and their affective relationship towards money. In a further analysis of the data, by means of the Post Hoc Tests (LSD), the following results were obtained: Table 4. Types of consumers and the affective relationship towards money (ANOVA and the Post hoc test) Table 4 indicates the existence of a statistically significant difference in terms of the affective relationship towards money between certain types of consumers such as Thinkers and Careerists as well as Thinkers and the Ambitious. Table 5. The behavioral relationship towards money (ANOVA) The table shows that there is, generally speaking, a statistically significant difference between the various types of consumers and their behavioural relationship towards money, that is, their behavior in relation to money: spending, saving, careful investing. A further processing of data, using the Post Hoc Tests (Tukey, HSD) led to the following results: Table 6. Types of consumers and the behavioral relationship towards money Management Journal for Theory and Practice Management 2012/62 A further analysis leads us to even more precise data, so that from this table we can conclude that since there is a statistically significant difference between the types of consumers and the behavioural relationship towards money, it is still the greatest in the case of the Innovators and Fighters. To be more precise, Innovators and Fighters differ the most in terms of the behavioural relationship towards money. This only confirms the fact that these are two completely opposite types of consumers, as the VALS concept defined. Table 7. The cognitive relationship towards money (ANOVA) The results indicate that there is a statistically significant difference between various types of consumers and their cognitive relationship towards money. The consumers who differ in their behavior while shopping differ also in their subjective experience of money, that is, the meaning which they ascribe to it. The Post Hoc Test was also done here and the following results were obtained: Table 8. Differences between the types of consumers and their cognitive relationship towards money It can be seen that there is a statistically significant difference between Careerists and the Practical. What this further says is that in addition to the other types of consumers generally differing in terms of the cognitive relationship towards money, the most pronounced difference was found between Careerists and the Practical. In order to determine the differences between the relationship towards money (the affective, behavioural and cognitive) component and the control variables (gender, age, education and source of income), the Ttest was used. The results indicate that, among people of different genders, there is no difference in terms of the relationship towards money in any of the aspects, the affective, behavioural or the cognitive aspect. This further implies that without considering gender, neither men nor women show differences in the emotional experience of money, nor in the behaviour towards money, or the subjective interpretation of it. In the case of participants of different ages there is no difference in the emotional and cognitive relationship towards money, but there is a difference in the behavioural relationship towards money between the younger and older participants, that is, younger and older participants behave differently towards money. In terms of the relationship between the level of education of the participants and the relationship toward money, interesting results were obtained. Management Journal for Theory and Practice Management 2012/62 Table 9. The difference between the affective, behavioural and cognitive relationship between the attitude to money and the level of education of the participants The results prove that between the affective relationship towards money and the education of the participants there is no statistically significant difference. Also, there is no statistically significant difference between the behavioral relationship towards money and the education of the participants. Nevertheless, between the cognitive relationship towards money and the education of the participants, a statistically significant difference was determined with a 0.002 probability, which means that the participants with different levels of education interpret money in different ways. Considering the fact that the education of the participants was divided into four categories (elementary school, high school, community college and university), in the case of the behavioral relationship towards money and the education of the participants, in the further statistical processing of data, we used the Post Hoc Test, and obtained the following results: Table 10. The difference between the behavioral relationship towards money and the education level of the participants (Post Hoc Tests) As can be seen from the table, the use of the Post Hoc Test has led us to determine the differences in the behavioural relationship towards money between participants of different levels of education. There is a statistically significant difference between the participants with an elementary school education and university education (sig. 0.032), then community college and university education (sig. 0.042), in terms of the behavioural approach to money. A further consideration can lead to the conclusion that the participants with an elementary school, high school and university education are more similar in their behavior toward money, than participants with a university education. Management Journal for Theory and Practice Management 2012/62 Table 11. The difference between the affective, behavioural and cognitive relationship towards money and the income of the participants From the table we can see that there is no statistically significant difference between the affective, the behavioral and the cognitive relationships towards money and the source of income of the participants. Conslusion The results show that various types of consumers differ in their relationship towards money. In some of the aspects of the relationship towards money there is no difference between all these types of consumers, however, between certain types there is a difference, as is the case with the affective relationship. Generally, there is no difference between all the types of consumers, but between Thinkers and Careerists, as well as between Thinkers and the Ambitious a difference was determined. Thinkers are guided by ideas, collecting information and the acquisition of knowledge. They are more interested in practical matters and what can be achieved by means of money. Careerists and the Ambitious are interested in achievement, prestige. For the Ambitious, money is the measure of success, and Careerists also have many needs and desires which are realized by means of money, so it is understandable why in the affective relationship towards money the Thinkers differ from the Ambitious and the Careerists. In terms of the behavioural and cognitive relationship towards money there is a difference between all types of consumers. In the cognitive relationship, the greatest difference can be found between Careerists and the Practical. The Practical are motivated by self-expression, what they use to create themselves, they do not value luxury, they are not impressed by material things and in that sense money for them does not have the same meaning as for Careerists. The greatest difference in the behavioural relationship towards money, that is, in how money is used, was found between Innovators and Fighters. Innovators spend money on many beautiful things and demonstrate their taste, they like diversity, while Fighters spend money very carefully and thoughtfully on what is necessary. Between the male and the female participants there are no statistically significant differences in any of the aspects of the relationship towards money. Between the participants with different levels of education there was no difference in the affective relationship towards money. In the cognitive relationship there was a statistically significant difference between the participants of all levels of education, while in the behavioral relationship there was a difference between the participants with an elementary and university education and community college and university education. Between the participants with different incomes there is no difference in any of the aspects of the relationship towards money. Irrespective of the amount of money these participants have at their disposal they do not differ in terms of the affective, behavioural or cognitive relationship towards money. People can love or not love money even when they have it or when they do not have enough, and the ones who do not have enough often spend it with more ease than those who have it in abundance. According to the results of our research in general, it seems that it is not important how much money you have, because it does not determine what kind of relationship towards money you have, but the type of personality, your psychological structure, that is, what type of consumer you are. In any case, the relationship between consumerism and the relationship to money is complex and requires further research. Management Journal for Theory and Practice Management 2012/62 REFERENCES: [1] Ilić, S. Psihologija potrošača, Draganić, Beograd, 1995. [2] Levinson, K. Emotional currency, Celestial Arts, Berkley, 2011. [3] Madanes, C. The Secret Meaning of Money, Jossey Bass, 1998. [4] Milisavljević M. Marketing, Savremena administracija a.d. izadavčko-štamparsko preduzeće, Beograd, 2003. [5] Mitchell, A. A. Cognitive Processes Initiated by Exposure to Advertising, in Information Processing Re search in Advertising ed. R. Harris, Lawrence Erlbaum Associates, 1983. [6] Needleman, J.(Money and the Meaning of Life, Currency Doubleday,)New York, 1991. [7] Price, L. D. Money Magic, New World Library, Navato, California, 2000. [8] Radulović D. Psihologija marketinga, Institut za kriminološka i sociološka istraživanja, Beograd, 1998. [9] Schwartz, Dr David J. The Magic of Thinking Big, Simon &Schuster, Inc., New York, 1987. [10] Tang, T. L. P. The development of a short Money Ethic Scale: Attitudes towards money and pay satis faction revisited. Personality and Individual Differences, 19, 809-817, 1995. [11] Tang, T. L. P. The development of a New Money Ethic Scale: A cross-cultural Study, 1999. [12] Tang, T. L. P. et al. The Love of Money and Pay Level Satisfaction: Measurement and Functional Equivalence in 29 Geopolitical Entities around the World. Management and Organization Review, 2:3, 423452. Blackwell Publishing Ltd., 2006. [13] Tang, T. L. P. et al. Whoever loves money is never satisfied with his or her income: implications for unethical behavior intention. Parts of paper presented at the Academy of Management Annual Meeting, Anaheim, CA, August 8-13, 2008. Receieved: 07. 2011. Accepted: 03. 2012. About the Author Zorica Marković Psyhology Department, Faculty of Philosophy, Niš Zorica Marković, PhD, is currently working as assisstant professor at the Psychology Department, Faculty of Philosophy in Niš. She teaches Marketing Psychology, Management Psychology, Work Psychology and Organizational Psychology courses. She received her bachelor degree in psychology at the Faculty of Philosophy in Niš, completed her masters degree at the Faculty of Philosophy in Belgrade and received her PhD degree from the Faculty of Philosophy in Niš in 2006 on Personality profiles of managers and their preferences in management styles and decisionmaking. She published a monograph entitled The Psychology of Leaders and Followers in addition to numerous scholarly articles. Iva Antanasijević Psychology Department, Faculty of Philosophy, Niš e-mail: olla717@open.telekom.rs Iva Antanasijević is a BA psychologist, currently at master studies in clinical psychology. She is a second year trainee in systemic family therapy. She is employed at the Welfare Center Paraćin in child and adolescent protection service, as a welfare worker at the case manager position. She is also engaged as an expert consultant on projects providing services in social welfare. She has numerous certificates of accredited programs in the field of social protection. Born in Šabac, in 1967, he started his professional career in 1990, as a co-founder and co-owner of a private company Sani d.o.o Šabac. As manager general, he successfully developed the company into a business system, Sani Group which currently includes five companies: Sanid.o.o. Šabac, Oto-Optika.d. Beograd, Cineoptic a.d. Beograd and Getaldus d.o.o. Kraljevo. Mr. Ninković is an active participant in the work of professional associations. Branko Ninković SANI, Šabac Management Journal for Theory and Practice Management 2012/63 Robert M. Mason The Information School, University of Washington, Seattle, WA 98195-2840 The Changing Face of Agility: the Challenge and Opportunity of Social Media UDC: 005.591:005.21 ; 005.336.5:005.57 DOI: 10.7595/management.fon.2012.0009 XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia Organizations, especially organizations that are engaged in knowledge work whose value added depends heavily on information are facing 4 challenges. In this presentation, I want to illustrate why these challenges exist, what the consequences are of the trends that we see in todays economic and business environment, and how organizations can meet these challenges. Keywords: Agility, social media, strategy, organization, innovation, millennial generation. We are in a revolution, a period of profound change. Organizations and institutions must transform themselves if they are to survive and remain relevant; and we as researchers must critically examine our organizational models and assumptions. The revolution is due to the confluence and interactions of 3 streams of change: Technology [Internet and connectivity, social media platforms] Demographics Values and social normssocietal and community behavior The next few paragraphs review these three trends and describe how they affect how we work and live together, how they affect the process of innovation, and how we may need to revise our approaches to leadership and research on organizations. Whether we are practitioners or researchers, we have to take a critical approach to our past experiences and knowledge and our past assumptions about how we organize for knowledge work. 1. Technology and information flow The first trend is the wave of social media platforms and services that have emerged and are attracting huge numbers of users (and investors: as I write this, Facebooks initial public offering valued the company at over $100B, the largest ever IPO). The ubiquity of social media changes how people behave and changes societal norms. Here are some examples of what is normal with todays set of information and communications technologies Books delivered in seconds to hand-held tablets, which can hold trunk-loads of books Access to information is assumed; discussions of facts can be settled quickly; Wikipedia has consolidated the world of facts into a set of accessible resourcesin multiple languages The old-fashioned sneaker-net used to communicate by word of mouth among friends and colleagues is complemented by Internet platforms that enable information sharing with unprecedented speed and reach; an information event can go viral in days or even hours Personal information sharing continues to expand through an increasing number of social media platforms. While Facebook perhaps is the best known, with over 900 million active users , there are dozens of other platforms: Youtube, Twitter, Pinterest, …, and new ones are being offered every day. Its unclear how many blogs exist, but the Technorati directory list over 1.3 million The result is an information ecosystem in which different platforms evolve and change and become differentiated over time. Management Journal for Theory and Practice Management 2012/63 Information sharing has become big business. With a price of $38/share, Facebooks initial public offering (IPO), which valued the company at over $100 billion, which was the largest ever initial valuation for a public company . Even with the recent fluctuations in share price, the high valuation of the firm shows how much business interest exists in social media companies. 2. Demographics If the technological changes taking place were not enough, were seeing a major shift in the demographics of the worlds population. The Net Generationthe generation that has grown up with the Internetis entering the workplace as the Baby Boomers are entering retirement age. As shown in Table 1 (which shows U.S. figures, although the relative sizes of the generations for the world are comparable), the generation is the largest post World War II generation. Table 1. Population Estimates of Three Generations of Workers Generation Birth Year Age in 2000 Current Age in Baby Boomers Generation X Digital Natives 1946-1964 1965-1977 1978-1994 Census 36-54 20-35 6-22 48-66 35-47 18-34 Population Estimates * 82.8 million 50.9 million 69.1 million The demographic shift is not just about numbers, however. Members of this generation bring into the workplace an ease with the new technologies of information and communication. Members of this generation have never known a world that does not have the Internet, mobile phones, laptop computers, and ready access to information. This generation has a different attitude about information and work. They have different expectations about their relationship to organizations for which they work and what they expect their efforts to produce. They do not see employers as safe economic havens and thus do not exhibit firm loyalty. They may choose companies based on the values of the company and the opportunity to have an impact on society; they want their work to change the world. While not universal, there is a high percentage in this generation that has a heightened sense of social justice. They are concerned with the asymmetries in the world, both economic and information. Their sense of information differs from the older generation. As one NetGener expressed it in a symposium on innovation (as she was tweeting about what was being discussed), An idea isnt real until Ive shared it.).Table 2 summarizes some of the distinctions between the Baby Boomers and Net Generation. For the most part, members of the Net Generation have been told by their parents that anything is possible, resulting in self-confidence and optimism in their capability to make a difference. [It is too early to tell if a protracted recession and economic downturn will affect this confidence.] Many in this generation start businesses or anticipate starting businesses, and many of the new businesses are related to information technology, information sharing, and social networking. The NetGeners see not only opportunities in the emergence of new technologies; they see opportunities with combining technologies (mashups). Many NetGeners, even if they become entrepreneurs later, first go into established companies. When they do, the combination of their confidence with new forms of communication with their comfort with technologies often creates tensions with workers used to more established routines. These younger workersand others who have embraced the newer technologies and work practicesseem to stand apart with their approach to work. They exhibit behaviors that often are inconsistent with the practices and expectations of their colleagues who prefer a different approach to information and work. As a consequence, leaders of organizations with a mix of ages and experience in their workforce face challenges that go beyond the expected challenges of organizations that have a more homogeneous workforce . Management Journal for Theory and Practice Management 2012/63 Table 2. Comparison of Working Styles of Digital Natives and Baby Boomers Values, Attitudes, and Styles Digital Natives Baby Boomers Work style Multitasking Time management Learning style Learn from experience Learn from instruction Collaboration Collaborative Independent Motivations Positive reinforcement; competition for fun Competition typically is zero-sum game View on authority Respect for others is earned Respect for authority Structure Decentralized, nonhierarchical, inclusive Centralized, hierarchical, exclusive Information access Access for all Access to those in power [Adapted from(Barzilai-Nahon and Mason 2010) ; See also (Tapscott 2009a)] 3. Values and social norms Technology, social norms of behavior, and enacted values coevolve . Community and societal values are expressed in social norms; a communitys behavioral norms reflect the underlying values of that community. Technology does not cause changes but does facilitate the exploration of behavioral options, which may lead to changes in how fundamental values are manifest. Consider, as an example, the concept of privacy. As software platforms enable merchants to offer benefits to buyers who share more information, people may decide the benefits outweigh the cost of giving up what can be private information. Similarly, users typically find that Facebook and Google provide sufficient benefits that they are willing to tolerate the collection of personal information in return for the convenience of use. As a consequence, previously accepted norms of privacy have been, in many observers eyes, eroded. The result is that the very notion of privacy in todays world is undergoing change. Other changes in behavioral norms are observed to varying degrees in different communities and corporate cultures: The availability of smartphones means that one may always be available, changing the expectations of responsiveness to questions and issues arising from coworkers The availability of location-based services, leading to a sense of persistent presence for ones friends, family, and coworkers As a consequence of the affordances of the technologies, knowledge workers experience less separation of home life and work life. Social life, personal life, and work life become intermingled more than ever before Telecommuting is more accepted. Working from home is the norm for many workers whose jobs are based on coding and systems work. Many people can (and do) work without an office at the firm. Others may share workplaces at a central location. In most cases, teamwork is the norm. Work is accomplished by communities of practice where individuals are working interdependently to produce output more often than working independently on a Taylor-like decomposition of separable tasks. Management Journal for Theory and Practice Management 2012/63 4. Consequences The coevolution of information technology (particularly social media) with social norms and values as the demographics of knowledge workers are shifting provides the fuel for this revolutionary period. This results in significant shifts and disruptions, and consequential challenges for practitioners and researchers. However, in any revolution, some things remain unchanged, and we should examine what is unchanged in this period. We should examine what continues to be foundational whenever we face what appears to be a dynamic and rapidly changing environment. In todays setting, I would posit that one principle remains constant. This principle is that the primary driver of economic growth and development continues to be innovation, particularly technical innovation. However, even as innovation remains a key to economic growth, the processes by which innovation occurs are changing. Innovation itself is affected by the confluence of technology, social norms, and demographics. A major shift in thinking has been the idea of crowdsourcing innovation. The idea has been around for a decade, and the experience of major firms such as Procter & Gamble has shown the value of using networks of resources outside the firm to resolve issues associated with product and process innovation. What seems to be different is the rate of new venture formation by NetGeners (and others) based on the affordances of social media. It should not be a surprise that Facebook was started by a NetGener, for example. Other examples may not be so obvious, but lets look at another entrepreneurial case, that of Quirky. Quirky was formed in 2009 by Ben Kaufman when he was 23. Quirky illustrates the power of crowdsourcing, building on social media technologies, which provide the basis for many of the NetGeners entrepreneurial efforts. 5. Quirky Quirky is a company formed in 2009 that resulted from the vision of Ben Kaufman. As a self-identified poster child of young serial entrepreneurs, Kaufman (age 23) illustrates many of the characteristics we identify with NetGeners. His story demonstrates the creativity, desire, drive, and approach NetGeners take to having fun with innovation. Quirky is Kaufmans third major launch. His first venture was mophie, begun when he was in high school. Mophie was formed to manufacture and sell retractable lanyard ear buds for the iPod Shuffle. The product succeeded, and mophie followed the lanyard with more add-ons for the iPod and Apple products. In 2006, two years after its formation, mophies Relo product was another hit at the MacWorld expo. The next year at MacWorld, having succeeded in raising venture capital that enabled him to have a professionally designed booth, Kaufman threw it outnoting that he did not want to be just another successful companyand used 2x4s to build a framed-in, wall-less room that metaphorically stated the unfinished nature of his business. He handed out 30,000 pads to MacWorld attendees with the message, help us decide on and design our next product line. He discovered tens of thousands of people were willing to offer ideas, and he took on the challenge of doing a complete design within 72 hours. By the end of the show, mophie had prototyped and introduced three new products . The extraordinary success of this process of crowdsourcing new product development got Kaufman thinking about the process, not just the products. Despite, or perhaps because of, the success of mophie, Kaufman realized he was bored. Three months after MacWorld 2006, he sold mophie (which he described as making iPod condoms). As he put it, I sold the product but kept the process. He then devoted time to refining the idea of kluster, a collaborative decision making platform that would streamline the crowdsourcing of innovation that was done at MacWorld 2007. Kluster tracks the contributions each person makes to the design (e.g., color, name, or other characteristic that contributes to the products success) and uses collaborative decision making on major design decisions. Kluster soon spun off namethis, a crowd-based approach to selecting names for products and product lines. Management Journal for Theory and Practice Management 2012/63 With kluster as the platform and an appreciation of the power of the crowdsourcing process, Kaufmanhas begun assembling a team that would form Quirky . After two years of research, team-building, and testing, Quirky emerged in June 2009. Quirky provides a combination of platform and process (based on kluster) that streamlines the collaborative (crowdsourcing) approach to innovation and new product development. Quirky enables anyone to suggest a product idea, which is then submitted to the Quirky community for comments and feedback (including the demographics on those providing feedback). Each idea is considered for the next Quirky product, which means that the Quirky community focuses on evaluating and polishing an idea and turning it into a product. The Quirky process and platform enables anyone in the extensive network (the Quirky community) to submit ideas, contribute at each stage of the innovation process, and be rewarded for their contribution. 6. Other Examples The idea of crowdsourcing and open innovation has become so popular that there is a website devoted to sharing information about the opportunitiesa list of open innovators. The list of almost 100 sites is widerangingfrom early peer production represented by Linux, Yahoo Answers, WikiPediato freelance platforms that match independent contractors with specific needs [e.g., Amazon Mechanical Turk; Human Grid]to those more focused on creating new products [e.g., Quirky, Threadless and Spreadshirt (T-shirts and hoodies); Dream Heels (custom shoes)]. Not all are startups by NetGenersestablished firms are represented in the list (e.g., Dell, Kraft, Sara Lee, Nokia, Starbucks, …), showing that they are aware of the opportunitiesbut founders from the Net Generation are well represented in the list. 7. Implications for practice The convergence of the above trends, and the crowdsourcing approaches to the innovation process, present organizational leaders with four challenges if their organizations are to remain agile. Challenge 1: The Talent Life Cycle (or, the Five Forces Revisited) In the past, competition and dynamism have been seen primarily as market and industry sector characteristics: competition for the customer and market share and defending against new entrants into the marketplace. In the 1990s, the competition was seen as the race (war) to acquire and manage talent, and organizational agility was a key to attracting talent. In todays hypercompetitive economic environment, both dynamism in downstream (customer) and upstream (supplier) dimensions remain, but the competition for attracting talent per se is only the beginning step in a competition to effectively utilize this talent in an expanded talent cycle that extends beyond employment. Young knowledge workers entering the workplace bring with them a new dimension of dynamics: they demand personal development through challenging tasks, job flexibility that is higher than what baby boomers would have preferred (and have accepted), participation in development towards objectives that matter to them, and flexibility in connecting and developing their own networks. Such preferences pose challenges to organizations to which our respondents provide different responses. In a study of firms in Switzerland, which has one of the highest innovation scores in Europe , we interviewed C-level executives and asked how their firms were handling the changes in demographics (younger knowledge workers) and the prevalence of social media. The executives recognized that changes are needed in their approach to organizational structures and leadership. For example: …young people whove grown up with games, these computer games, they dont do things the same way as we have done it… ... young people take over more responsibility [for] themselves and give less to an employer, which is certainly having advantages and disadvantages … These observations affirm that the resource-based view of the firm remains dominant. In the eyes of the executives, creative knowledge workers determine the competitive advantage of the firm and represent the Management Journal for Theory and Practice Management 2012/63 capabilities for continued learning. The executives recognize that knowledge and learning are not simply an individual capability but one that is manifest through work teams and the organization as a whole. New Motivations and Values As implied in Table 2, NetGeners do not adapt easily to the industrial ways of working, hierarchical organizations, and bureaucratic decision makingorganizational models that have been accepted by baby boomers. NetGeners seek to make a difference; they like challenges. They want to continue to improve their skills and capabilities. These motivators, more than job stability and routine, stimulate this generation of workers. Our respondents recognize these values: … there are more people who are looking to do something they like. And what they like is not only the career, like having a lot of money and the title and all that, that they start a career. They also want to do something which they have a passion for. And people who are driven also by passion not only by titles and by salary … … people have become more flexible because of the young people nowadays … who, not all of them, but a lot of them,… have [their] own ideas of what they want … Our research and other studies of this generation show that NetGeners have high expectations about their career development. They frequently assume personal responsibility to make the best out of every job. They expect to continue professional development and want to see themselves progressing; they are dissatisfied with remaining in the same position for long. As a consequence, career paths for the new generation of knowledge workers are more dynamic and less predictable than they once were. The job stability preferred by the baby boomers is slowly being replaced by a desire for vigorous professional development. Executives recognize this: … those newcomers really take more responsibility for themselves and for their career… … these people are engaged and they do a job they want to do … Solution: Re-think the Management of Knowledge Workers NetGeners require different leadership approaches, and the pioneering organizations recognize this. Executives who had been successful in attracting the brightest new workers acknowledged and promoted work practices such as the following in their organizations. Engage the workers early. Many of the leading firms have expanded their internship, part-time, and summer employment possibilities for college students. This enables them to establish a relationship with potential employees early and provides a low-risk and relatively low-cost opportunity for both employee and firm to get acquainted. Each can learn from the other, and there is a greater likelihood of a good match in roles if the engagement turns into regular employment. Search for challenging projects. For NetGeners, having fun while working and being a part of what changes the world plays a crucial role in the work they do. Consulting and tourism firms have opened the social network sites for employees. Many said that an attitude of work-life balance is being replaced by an attitude of work-life integration for those who choose this approach. If employees work during their non-working hours, they can do private networking during their workday. The firms provided opportunities for flexible working environment (people can work from anywhere they want); home office opportunities (this is especially crucial for women with children); and interesting jobs that bring self-realization and selfsatisfaction. Those firms emphasize that challenging projects in which employees can develop their own ideas and be creative provided more incentives to the digital natives than a higher salary. Opportunities for development rather than promotion. People like to succeed, and the NetGeners are no exception. They demand more personal responsibility for what they do, but they want to be rewarded for their contributions and performance. Therefore, progressive companies encourage employees learning and development as well as provide alternative reward paths. They organize seminars and conferences where employees can share their success stories and give advice to those who is still looking for new opportunities. More personal responsibility. Telecommunication firms and attorneys long ago began building the relationships with their workers on results orientation and trust rather than on directing and controlling time Management Journal for Theory and Practice Management 2012/63 spent in the office. These firms trust the workers to be capable and do the work needed in the time framework required. To accomplish this, they ensure a dense communication pattern: they discuss with the employees what they expect and communicate the realistic goals to which they have agreed. These firms have concluded that it is not about controlling what employees do, but rather about prospering from the good results they achieve. Reverse mentor programs and supervision modes. For the advanced firms, hierarchical structures and topdown control and supervision modes for knowledge workers were judged to be outmoded and ineffective. Employees were an essential component and contributor to a dynamic corporate strategy. Dynamic governance and flexible roles are replacing static reporting structures, enabling an integration of strategy formulation and execution. For example, tourism firms base their governance and decision structures on knowledge authority, such as processes of peer reviews, revisions, and collaborative strategy rather than following a top-down strategy. They engage knowledge workers in the decision making processes. For these firms, fewer rules, mutual learning and continuing dialogues are effective practices. If we pictured these organizations as hierarchical, we would say that the top-down supervision has been replaced by vertical (up and down) collaboration and more intense horizontal communications. Solution: Resolving the Issue of Short Tenure Executives have recognized the mobility and increased dynamism of the human resources. As long-life employment becomes rare, fewer young employees stay at the same work place for several years. They become nomadic workers not only in terms of work space flexibility and work from anywhere, but they desire flexibility in where they choose to work. Executives in our study acknowledged that NetGeners felt they easily could move from company to company; they observed that there seemed to be little stress associated with losing ones job. Typical comments were: … when I started to work 25 years ago, it looked like a lot of people chose an employer and they were loyal to their employer. That has changed ... Now young people choose something they like to do. They do something and if its not what they like, they just move on and go somewhere else. And I think that has also forced us to think differently… … most of them, they do not think that this is a problem. If they lose their job, they will go for the next one… Approach: Create and invest in alumni networks. Several of the firms acknowledged that they never try to keep employees as long as possible. It simply does not work for the firm or the employee. What these firms do is accept when employees choose to leave, recognize their valued service, but engage them in alumni networks so they remain connected. These firms keep track of what their former employees do and where they work. They invite them to the annual Christmas dinners and keep them in their network of knowledge assets. This not only widens the companys network but gives young people the chance to come back to the firm when the good opportunity arises. This approach serves as a powerful resource for identifying new talent and maintaining an engaged network as a source of new ideas and learning. Challenge 2: Core Resourcestheyre not just inside the organization Our executives acknowledge their firms are part of a broader network built around individuals social networks: …it goes in this direction; above all, we will also have to look at these social networking sites, like Facebook or even in such a business network like XING, what is being talked about there. I think, this cannot be prevented, or how can one prevent that anyhow? … the use of all of these new forms is important and I should say people establish their own networks out of the company, within the company, but this is not basically organized. That is done on individual ways. I mean people have this urge and this need to network and to stay on top of the development in their fields… While we have known about this effect for a long time, it now becomes increasingly clear that firms acknowledge the importance of the networks and develop ways of building trust in them. The networks are about interactions that maintain the ties between individuals, but they also are about getting access to new knowledge and information embedded in these networks. Management Journal for Theory and Practice Management 2012/63 … I think the way people need to interact with each other, the way people start to work in groups, the way people interact has a different work style. There is something in it, there is a call in it which I would say is relevant probably trained, its a relevant development that Im also seeing out there… … it depends on how you can link your private friends and working friends together. I think that one of the topic in the future that what the young people like to have. Then of course, the newest technology you should apply in your office. Social network for me is the topic, I think thats also for the working area important even its now restricted. But we would like to motivate young people to use that… The use of social media has made it possible for professionals around the globe to get advice from their colleagues and share experiences with a mouse click. Utilizing the vast amount of resources that are available online available tends to make access more valued than self-creation. As the technology makes this easier, the focus shifts from simple factual knowledge exchanges to enabling tacit exchanges and collaboration among trusted members of the network: …it is less about just having access to study results and getting numbers. It is more and more also having access to the people who have experienced something similar and so on and so forth and having these types of networks in this dimension where the human interaction earns a great value… Communities of practice (CoPs), as part of the knowledge management practices of the firm, are also undergoing significant changes due to the social media influence. The academic literature typically views CoPs as effective tools for tacit knowledge transfer within an organization ; the presumption is that they are contained within the corporate borders. Our studies show they increasingly bridge organizational boundaries and may be formalized as independent entities. Professional communities have long taken this approach to formal independent associations. Journalists, doctors, teachers, and lawyers extend linkages beyond organizational boundaries to preserve their professional ethics and enhance their learning in collaboration with other professionals. Prior studies have shown that members of the professional communities often feel a stronger identity with their profession than with the companies that employ them. FLOSS (Free/Libre Open Source Software) and other open source software communities are examples of successful open knowledge creation communities in a free knowledge ecosystem. Many of them are operated by independent knowledge workers, but many larger firms explicitly or tacitly encourage their employees to support these FLOSS developments, as IBM and Oracle have done for the Linux and the OpenOffice software package. Question of Control The cross-boundary nature of the individual networks raises the question of how an organization can control the flow of information in these networks and what should be the role of management in this more open information environment. If individuals loyalties shift away from their employer toward their personal network, how should executives approach this new environment? Although many organizations express concern over the risk of potential loss of proprietary knowledge, some executives in our study express optimism that the benefits outweigh the risks: … we have a strong development to the new communication channels like instant messaging, Facebook, and LinkedIn, and we are also offering these products with certain services to our customers … I am absolutely convinced that if companies make use of those features like Facebook or XING, they will gain a competitive advantage and if they dont do it at some point in time, they will actually lose people and they will lose the chance to realize on ideas that are in their company but they are not being found because they dont use these new tools … The key seems to be an organizational agility to embrace openness and the opportunities for learning through the individual networks. Corporations have used similar approaches before to build strategic partnerships between and among firms with whom they could cooperate. The difference now is that the networks are individual and potentially more collaborative. Challenge 3: A New Communication Network Ecology Management Journal for Theory and Practice Management 2012/63 The early emphasis on the use of social media for marketing and HR purposes is diminishing as firms recognized the limitations of treating social media like other marketing channels. Collaboration platforms and shared workspaces enable more community-based communication and collective actions. Some firms have made a shift from physical meetings to virtual working environments, enabling project and human resource management, technical support, training, and networking to be accomplished from anywhere. The so-called Enterprise Microblogging (Twitter-like messaging on a firms intranet) improves employees visibility and provides new opportunities for knowledge management. The variety of communication channels (SMS, twitter, email, phone, video-conference, shared workspace etc.) also increases contact with those outside the firm and blurs boundaries between customers and employees. Not all channels are the same, however, our respondents recognized that they need to make careful choices among communication channels to avoid loss of productivity. The capabilities for virtual collaboration are enhanced with the wider range of opportunities for shared storage and even processing capacity in the cloud, enabling greater organizational agility for knowledge work across boundaries. GoogleDocs and shared storage platforms such as Dropbox are just the beginning, and firms can expect to see additional cloud service options. Solution: Getting Engaged The more possibilities the firms provide to the employees to stay connected, the greater access they will have for new knowledge and ideas. Collaboration platforms, shared data storage, wikis, blogs, and forumsboth inside and outside the firmenlarge the range of resources available to the firm and leverage existing investments. The emerging network environment does preclude the loss of control but does require executives to rethink the means by which risk is managed. Only by remaining engaged with the emerging information ecology can firms maintain an awareness of the expanded opportunities for learning and creating value. Managing risks through limited experimentation and bounded engagement with the wider networks will be a better choice than staying on the sidelines. Engagement is a better choice than the certain risk of being left behind by the competition. Challenge 4: Still no Consensus on a Single Model for New Ways of Work The executives in our studies, even those that recognize the opportunities of this still emerging environment, still have widely divergent views on the most effective management models for realizing these opportunities. The differences can be attributed largely to the business sector (dynamism of the sector, characteristics of the customers and competition) and management philosophy. There is no single right way to engage the technologies. …we have different systems, like iChat, Skype …and, as we try to work together very quickly we are using these. This is a development which we have made by ourselves. We look what is completed or whether it is stuck…we are organized very well at this point… …we dont even know how to competently decide whether we use iPhone, Smartphone, Blackberry or HTC. Its just a centralized competence which defines the standard. Thats probably the reason why we are not proactive looking for different ways. We are quite limited in that... What we see is that some companies have no restrictions on employee use of the Internet during working hours, allowing them to surf the Internet in search of new ideas and customers as well as linking to other individuals on social networks. Others are absolutely convinced that there is no direct linkage between social media and the work their employees are doing and consequently close all the social websites in an attempt to force their employees to think only about work in the working hours. While we judge that the pioneering companies that are experimenting with, or even embracing, the affordances of social media will ultimately come out ahead, our studies cant say that the companies that take a more reactive tactic are misguided. Our studies do suggest that trying to change employee behavior and establish norms through only technical or policy barriers is limiting. As noted earlier, employee behavior, technology, and social norms (within the firm and in the larger community) are linked and coevolve. An organization that attempts to change one without being aware of this coevolution process is likely to fail. Management Journal for Theory and Practice Management 2012/63 For most firms the experimentation will continue, with new work practices and organizational forms being tried, evaluated, and subsequently either adopted or discarded. These experiments are seen as part of the firms overall adaptive and agile strategy. … the evolution is still going on, so that the young generation entering the company has no trouble and we dont have trouble with them. So we try to evolve, be up-to-date with the technology, no need to make a special job for adaptation. Its an ongoing process… 8. Implications for research The confluence of the three trends (demographics, social media technologies, and behavioral norms and values) provides a strong incentive for scholars to re-examine our models of organization and management. Perhaps what is in order is a critical review of the models that have become accepted as the norm, that are accepted as the bases for what we teach in management courses and what we accept as conventional wisdom. As noted above, it may be that some principles dont change, but how we articulate these principles in practice may need to be modified. Two examples of these include the following: Coases concept of the nature of the firm , which argues that firms exist to reduce coordination costs, needs a close look in todays information ecosystem. Information exchange costs, necessary for coordination, have dropped to near zero with the Internet. The necessity to collocate work resources has been addressed with a flood of studies of virtual organizations. However, at some point, the cost of sorting through the options for coordination channels may itself constrain the ideal of a totally distributed organization, but as a minimum scholars should critically examine the underlying assumptions in our management courses to detect the hidden assumptions based on Coases nature of the firm. The Resource-based/Knowledge-based views of firm , which argue that firms are organized to exploit specialized knowledge, may still be valid. In todays information ecosystem, what is the resource? For firms that consider knowledge as the key resource (and its hard to identify exceptions), the information ecosystem means that knowledge is less sticky and more leaky. The firm has less control over the critical knowledge (whether that knowledge is in tangible form or more tacit). Early critical reviews of organizational and knowledge management models appeared earlier this year; more work is warranted. Conslusion It has always been the case that technology presents society with challenges for which there are no templates, no precedents, and no guidelines for making decisions. Today, this remains true, only the technological changes are happening more rapidly, coevolving with society changes and even changes in community valuesand these trends in many ways have become mutually reinforcing. Organizations confront significant challenges as they seek strategies that will enable them to take advantage of the opportunities inherent in this dynamic and emerging information ecosystem. There is some evidence that the Net Generation, having grown up surrounded by these coevolving forces, see the opportunities more clearly than their counterparts who have been successful in earlier times. Established organizations that pursue agility and innovation will do well to engage this new generation; such engagement is both a serious challenge and the critical opportunity. Acknowledgements Thanks to colleagues and collaborators with whom I have worked in prior papers and articles that have informed the contents of this paper. These include, from the SoMeLab at the University of Washington (Seattle): Josef Eckert, Jeff Hemsley, Karine Nahon, and Shawn Walker; and from CeTIM (Munich and Leiden): Katerina Bondar and Bernhard Katzy. Management Journal for Theory and Practice Management 2012/63 REFERENCES (and further reading) [1] Anon. 2009.Ben Kaufman of Quirky, Kluster, and Mophie Design Glut. http://www.designglut.com/2009/09/ben-kaufman-of-quirky-kluster-and-mophie/. [2] 2011. IUS 2011 Dashboard. Pro Inno Europe. http://www.proinno-europe.eu/sites/default/files/inno metrics/IUS2011.html. [3] Key Facts - Facebook Newsroom. http://newsroom.fb.com/content/default.aspx?NewsAreaId=22. [4] Blog Directory - Technorati. Technorati. http://technorati.com/blogs/directory/. [5] Barney, Jay. 2001. The Resource-based View of the Firm: Ten Years After 1991. Journal of Manage ment 27 (6): 625641. [6] Barney, Jay B. 1996. The Resource-based Theory of the Firm.Organization Science 7 (5): 469. [7] Barzilai-Nahon, Karine, and Robert M. Mason. 2010. How Executives Perceive the Net Generation. Information, Communication & Society 13 (3): 396418. doi:10.1080/13691180903490578. [8] Coase, R. H. 1937. The Nature of the Firm.Economica 4 (16). New Series (November 1): 386405. [9] Hemsley, Jeff, and Robert M. Mason. 2012. The Nature of Knowledge in the Social Media Age: Impli cations for Knowledge Management Models. In Proceedings of HICSS 45. Maui: IEEE. [10] Katzy, Bernhard, Kateryna Bondar, and Robert M Mason. 2012. Knowledge-Based Theory of the Firm, Challenges by Social Media. In Maui: IEEE. [11] Kogut, B. 1996. What Firms Do? Coordination, Identity, and Learning.Organization Science 7 (5): 502518. [12] Quinn, J. B. 2000. Outsourcing Innovation: The New Engine of Growth. Sloan Management Review 41, no. 4 (Summer): 1328. [13] Raice, Shayndi. Facebook Prices Its IPO at $38 - WSJ.com. http://online.wsj.com/article/SB10001424052702303448404577409923406193162.html. [14] Rao, L., and Nabil Sakkab. 2006. Connect and Develop: Inside Procter & Gambles New Model for Innovation. Harvard Business Review 84 (3): 5866. [15] De Ridder, Philippe. List of Open Innovation & Crowdsourcing Examples - Best Practices - Open In novation and Crowdsourcing. http://www.openinnovators.net/list-open-innovation-crowdsourcing6examples/. [16] Tapscott, Don. 2009a. Grown up Digital: How the Net Generation Is Changing Your World. New York: McGraw-Hill. [17] 2009b. Grown up Digital: How the Net Generation Is Changing Your World. New York: McGraw-Hill. [18] Wenger, E. 1998.Communities of Practice: Learning, Meaning, and Identity. Cambridge Univ Pr. Receieved: April 2012. Accepted: June 2012. About the Author Robert M. Mason The Information School, University of Washington, Seattle, WA 98195-2840 rmmason@uw.edu Prof. Mason (Bob) is professor at the Information School of the University of Washington in Seattle. He has degrees from MIT and Georgia Tech and previously was on the faculty at Florida State University and Case Western Reserve University. His recent research examines the impact of social media on knowledge work and how organizations provide post-implementation support for enterprise systems. He is a founding member of the Social Media Lab @ UW (somelab.net) and is working with a team of students on information flows related to the Occupy movement. Management Journal for Theory and Practice Management 2012/63 Milena Popović1, Marija Kuzmanović2, Milan Martić3 1,2,3 University of Belgrade, Faculty of Organizational Sciences Using Conjoint Analysis to Elicit Employers Preferences Toward Key Competencies for a Business Manager Position UDC: 005.953.2 ; 005.52:005.331 DOI: 10.7595/management.fon.2012.0011 XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia This paper attempts to identify those competences for a business manager position which potential recruiters consider to be important. We propose conjoint analysis as an appropriate tool to determine the recruiters preferences. Conjoint analysis is an experimental approach used as a tool for measuring customer preferences regarding the attributes of a product or a service, as well as for understanding the development of an individuals preferences. The conducted research and the obtained results have the purpose to inform potential candidates about various recruiters expectations, and to help university teachers design their courses. Keywords: key competencies, business manager, recruiters, Conjoint analysis, preferences 1. Introduction The employees are the key to success for any company. Therefore, the companies that recognize this fact and manage to select and retain quality staff are more likely to achieve competitive advantage. To choose good quality staff means to organize the recruitment process properly and to select the candidates capable of being efficient and loyal to the company. Recruitment is the process of identifying and hiring the best-qualified candidate from a previously generated applicant pool so as to meet the goals of a company and to satisfy current legal requirements (Catano et al., 2001). In the recruitment process, candidates competences have a vital role. There are a number of papers devoted both to concepts of competence and to various models of the key competencies. According to Dalton (1997), a competency model describes motives, traits, and so forth as a set of desired behaviors for a particular job position or level. As such, a competency model is an occupational profile typically developed for individual occupations but also extensible to occupational groups. Competency models are used to tie job specifications to the organizational strategy; the competencies then function as a common language (Lievens et al.,2004) which is used to identify the critical success factors driving performance in organizations (Delamare Le Deistand & Winterton, 2005). The objective of this paper is to determine the list of key competencies for a business manager position which potential recruiters consider particularly valuable. For that purpose we employ conjoint analysis. Conjoint analysis is an experimental approach used for measuring customer preferences regarding the attributes of a product or a service (Kuzmanović & Obradović, 2010; Venkatesh et al., 2012). Originally developed in the field of mathematical psychology, conjoint analysis has attracted considerable attention, especially in marketing research, as a method that portrays consumer decisions (Iyengar & Jedidi, 2012). However, few studies have used the conjoint analysis within the labor market. Using conjoint analysis Baker and McGregor (2000) determined the relative importance of seven criteria on hiring accountants and, at the same time, examined whether these values differ among different groups of individuals. Biesma et al. (2007) applied conjoint analysis to estimate preferences of employers for key competencies of master level graduates entering the public health field. Management Journal for Theory and Practice Management 2012/63 This paper is organized as follows. Section 2 provides an overview of the literature related to the models of key competencies. Section 3 describes conjoint analysis, a method we have proposed as an appropriate tool for determining the importance of a variety of competencies from the recruiters point of view, as well as to isolate the most important ones in the process of candidate selection. A survey was conducted and most important findings are given in Section 4. Section 5 provides the concluding remarks. 2. Models of key competencies In todays environment characterized by high rate of unemployment and high pressure to rationalize production, as a result of increased competition causing an increase in labor productivity, it is crucial for the company to hire the best people possible. In other words, technological and organizational changes lead to an increased need for staff equipped with higher and better skills (Elias & McKnight 2001; Green et al., 2001; Stasz, 2001) which is primarily achieved through education and training (Borghans et al., 2001). To respond to the demands of the modern age, it is necessary for an organization to perform quality and efficient recruitment, selecting the right people for the job, and efficiently using human resources, motivating employees, eliminating the leaves, introducing fair remuneration and promotion systems, and making decisions based on current information (Mitchell et al., 2011). Expert recruitment and orientation of employees enables assigning the employees on the basis of their skills, attitudes and work motivation. Although there is no direct and linear relationship between the recruitment of personnel and organizational efficiency and performance, it is reasonable to assume that improved personnel selection will result in better performance (Kurtz & Bartram, 2002). In addition to potential benefits directly related to good recruitment, there are lower costs of poor selection of candidates, as well as the risk of rejection of good candidates who can be hired by competitors (Robertson et al., 2002). The question is to determine the capabilities, skills and competencies which a candidate should possess so he/she could be chosen. In addition, some other potential problems can occur, as when the candidates wishes and potentials do not align with the demands of the employer. In response to the above question, numerous studies have been conducted. In terms of qualities and skills a candidate should possess (using notions of many authors) two types of competencies: field-specific competencies and generic competencies. Generic competencies can be defined as the combination of learning, analytical and problem-solving abilities applicable in various domains (Heijke et al., 2003). Several studies investigated the role of key competencies for the labor market (Borghans et al., 2001; Stasz, 2001; Heijke et al., 2003). Some emphasize the role of field-specific competencies on labor market outcomes (Mane, 1999) while others stress the importance of generic competencies (Stasz, 2001). According to Ruetzler et al. (2010), there are seven criteria to evaluate a candidate: academic grade point average (GPA), interpersonal skills, interview preparedness, the ability to work with others, alignment with organizational culture, and work experience. Since a students primary job is to study academic materials, a students GPA is often seen as an equivalent to an employers performance evaluation. The use of the GPA as a selection variable is controversial; however, when a job candidate has limited work experience, the GPA provides an apparently objective criterion to which recruiters can turn in screening applicants and establishing a candidates potential (Kuncel et al., 2004). Although some studies suggest that the overall GPA is not considered to be an important selection criterion (Baker & McGregor, 2000; Guo et al., 2009; McKinney et al., 2003), there is support elsewhere for the proposition that GPA is used as a selection tool and may well be important when identifying a set of candidates to be interviewed (Roth & Bobko, 2000). Interpersonal skills, which include listening as well as oral and written communication abilities, are widely identified across the literature as important competencies. Interpersonal skills sometimes referred to generically as communication skills have been ranked among the five most important skills for entry-level managers by hospitality industry leaders (Chung-Herrera et al., 2003; Fjelstul, 2007; Mayo & ThomasHaysbert, 2005; Tesone & Ricci, 2005). Management Journal for Theory and Practice Management 2012/63 Little research exists that directly examines the preparedness of a candidate for an interview or the impact of such preparation on job offers. A recent study addresses the effects of preparation for interviews that involves faculty members conducting mock interviews so that candidates can rehearse performing in the interview setting, concluding that mock interviews lead to increased confidence and enhanced interviewing skills (Hansen et al., 2009). Having the ability to work with others involves being able to work as a team member as opposed to behaving as an individual who prefers to work alone or does not like to help others. Being team-oriented is a highly valued trait in most industries. Tesone and Ricci (2005) found that the ability to work as part of a team was the number one skill identified by industry practitioners. In Fjelstuls (2007) research, teamwork ranked as the second most important skill. Baker and Harris (2000) discovered that students specialized in technology or information systems felt that the ability to work with others was one of the two most important traits in the eyes of recruiters. Alignment with an organizations culture and mission occurs when a candidates values and beliefs are consistent with those espoused in the organizations internal literature, such as its mission statement. An employees emotional commitment and sense of identity with a company lead to greater performance both of an employee and a firm (Hemp, 2002). A meta-analysis conducted by Kristof-Brown et al., (2005) found that person-organization fit, the compatibility between a person and an organization, correlated significantly with the intent to hire and with actual job offers. 3. Conjoint analysis Conjoint analysis is a multivariate technique that can be used to understand how an individuals preferences are developed. Specifically, the technique is used to gain an insight into how consumers value various product attributes based on their evaluation of the complete product (Kuzmanovic & Martic, 2012). Conjoint analysis, sometimes called trade-off analysis, reveals how people make complex judgments. The technique is based on the assumption that complex decisions are made not based on a single factor or criterion, but on several factors CONsidered JOINTly, hence the term Conjoint. Conjoint analysis enables the investigator to better understand the interrelationship of multiple factors as they contribute to preferences. Conjoint experiments involve individuals being asked to express their preference for various experimentally designed, real or hypothetical alternatives. These hypothetical alternatives are descriptions of potential realworld alternatives in terms of their most relevant features, or attributes; hence, they are multi-attribute alternatives (Parker & Schrift, 2011). Lists of attributes describing single alternatives are called profiles. Typically, the set of relevant attributes is generated by reviewing the research literature and performing pilot research with techniques such as focus groups, factor listings, or repertory grids. Two or more fixed values, or levels, are defined for each attribute, and these are combined to create different profiles. Obviously, the number of possible profiles increases immensely with the increasing number of attributes or levels. A set of profiles that consists of all the possible combinations of the attribute levels is the full-factorial experimental design. As in most conjoint studies, a large number of possible combinations of attributes and levels make it impossible to generate a design based on all the possible combinations. Namely, such designs are impractical because the subjects cognitive limitations and time constraints do not allow considering a large number of profiles. Thus, fractional factorial designs, which assume no interactions between attributes and ensure the absence of multicollinearity, are used to reduce the number of profiles. The experimental procedure involves profiles being presented to respondents who are invited to express their preference by rating or ranking these profiles. Preference functions are estimated from this data, using OLS regression for rating the data, and ordinal techniques when the rankings are obtained. Having collected the information on individual preference, the responses need to be analyzed. To determine a relative importance of different attributes to respondents, the trade-offs that individuals make between these attributes, as well as the overall benefit taking into account these trade-offs, a relationship must be specified between the attributes utility and the rated responses. The simplest and most commonly used model is the linear additive model. This model assumes that the overall utility derived from any combination of attributes of a given good or service is obtained from the sum of the separate part-worths of the attributes. Thus, respondent is predicted conjoint utility for profile j can be specified as follows: Management Journal for Theory and Practice Management 2012/63 , , (1) where I is the number of respondents; J is the number of profiles; K is the number of attributes; Lk is the number of levels of attribute k. ikl is respondent is utility with respect to level l of attribute k. xjkl is a (0,1) variable that it equals 1 if profile j has attribute k at level l, otherwise it equals 0. ij is a stochastic error term. The parameters are estimated by a regression analysis. These beta coefficients, also known as partworth utilities, can be used to establish a number of things. Firstly, the value of these coefficients indicates the amount of any effect that an attribute has on overall utility of the profiles the higher the coefficient, the greater the impact. Secondly, part-worths can be used for preference-based segmentation. Namely, given that part-worth utilities are calculated at the individual level, if preference heterogeneity is present, the researcher can find it. Respondents who place similar value to the various attribute levels will be grouped together into a segment. Thirdly, part-worths can be used to calculate the relative importance of each attribute, also known as an importance value. Importance values are calculated by taking the utility range for each attribute separately, and then dividing it by the sum of the utility ranges for all of the factors. The results are then averaged to include all of the respondents. If the market is characterized by heterogeneous customer preferences, it is possible to determine the importance of each attribute for each of isolated market segments. Overall utility scores can be estimated for different combinations of attributes by inserting the appropriate levels into Equation 1. These utility scores can be further used to predict the market shares for each of the defined combinations. Finally, part-worths can be used to test the internal validity of conjoint analysis, i.e. the extent to which the results are consistent with economics theory, or, more generally, a priory expectations . 4. Empirical study The main objective of this study was to identify the key competencies of candidates for the business manager position from the employers point of view, but also to determine a most preferred candidate. The survey was fielded in Belgrade, Serbia, in May 2011. In total, 31 individuals answered the survey. While this sample size may be regarded as relatively small, it is not atypical for conjoint analysis application when the survey goal is investigational work, or an attempt to develop a hypothesis about a market (Orme 2006). Study design The first stage in the design of a conjoint analysis study is the selection of the attributes. We have defined ten key attributes based on literature review (Biesma et al., 2007; Ruetzler et al., 2010), and opinions of potential employers obtained within the pilot research. Having chosen the attributes, levels must be assigned to them. These should be realistic, plausible and capable of being traded. The attributes and levels chosen for this study are shown in Table 1. Table 1. Attributes and their levels Attribute Education Work Experience Foreign languages Computer skills Communication skills Problem solving skills and creativity Team working skills Organizational skills Proactivity Interview preparedness  Level 2 Master, general Internship Level 1 Bachelor None One language More languages Basic Fair Fair Team worker Average Highly Insufficient Advanced Good Good Individualist Good Insufficient Full Level 3 Master, specialized Employment / / / / / / / / Management Journal for Theory and Practice Management 2012/63 The first attribute, Education, refers to the fact that a candidate entering the selection process must have at least the Bachelor degree. In addition to Bachelor degree, the candidate may have a general master degree, or may be specialized in a specific field. The attribute work experience is chosen because employers often emphasized its importance during the pilot research. In this study we distinguish work experience in terms of either employment or internship. The internship most often refers to the three-month period of work during studies. The assumption is that all candidates are fluent in at least one foreign language (usually the English language). Therefore, we define two levels for this attribute. The first level corresponds to excellent reading, writing and good conversation in one foreign language, while the second level assumes the same for more than one languages. The candidates preparedness for the interview indicates his willingness and desire for a given position. This attribute refers not only to how the candidate is informed about the company but also his attitude, manners and outfit. Therefore, we define two levels of this attribute: fully and insufficiently prepared. All other attributes are described using two levels, where one of them refers to the fair level while the other refers to a higher level of a certain skill. Although many previous studies stressed the GPA as an important factor, the results of the pilot research we conducted indicate that this attribute is of negligible importance for the position of business manager. Therefore, we excluded it from this study. Once attributes and attribute levels are selected, they must be combined to form different hypothetical profile of candidates for survey respondents to assign preference ratings. The attributes and levels in Table 1 gave rise to 2304 possible profiles (32 x 28). To reduce this number of profiles to a manageable level, in this study a component of the statistical package SPSS 16.0 (Orthoplan) was used. Thus the 2304 possible profiles were reduced to 16. Two control profiles (holdout tasks) were added to the given design. These 2 profiles were not used by the conjoint procedure for estimating the utilities. Instead, the conjoint procedure calculates correlations between the observed and predicted rank orders for these profiles, as a check of the validity of the utilities. The 18 hypothetical profiles considered are shown in Table 2. In order to elicit the preferences for the various profiles, in this study a rating approach was utilized. The respondents expressed their preferences for a particular candidate on a scale of 1 to 9, where 1 stands for absolutely undesirable, and 9 stands for absolutely desirable. The survey was conducted using the traditional paper and pencil method. Table 2. Generated list of profiles ID Education Work Experience Foreign languages Computer skills Commun . skills Master G Bachelor Bachelor Bachelor Master S Bachelor Master G Bachelor Master S 10 Bachelor 11 Master G 12 Bachelor 13 Master G 14 Master S 15 Master S 16 Bachelor 17* Bachelor 18* Master S * holdout profiles one more more none none internship employment one internship more employment more employment more none more employment one one none one internship one none none more one none more none one internship one internship internship one fair advanced good basic advanced good advanced good basic good fair advanced fair basic good basic basic good good basic fair basic basic fair advanced good advanced advanced advanced advanced advanced fair fair fair fair fair Problem solving and creativity fair fair good good fair fair good good fair good good fair fair good good fair fair good Organiz. skills Proactivity good good average insufficient Team working skills insufficient teamwork good individualist good insufficient individualist average insufficient teamwork teamwork teamwork highly individualist good teamwork insufficient good individualist average insufficient individualist average highly average insufficient teamwork teamwork average highly individualist average highly individualist good teamwork individualist good teamwork teamwork average insufficient good insufficient average highly highly highly highly insufficient Interview prepare. insufficient full insufficient full insufficient insufficient insufficient full full insufficient full insufficient full insufficient full full full full Management Journal for Theory and Practice Management 2012/63 Analysis and Results In the entire sample, slightly more than half of the respondents were female (54,8%). Table 3 provides detailed demographic data. Table 3. Demographic characteristics Characteristics Industry Position at the company Working experience Description Bank Production company Sales company Service company HR Sales manager Marketing manager Project manager Top manager Less than five years From six to ten years More than ten years % 9.6 19.4 29.1 41.9 38.7 25.9 12.9 6.4 16.1 54.8 32.3 12.9 The results of the analysis are shown in Table 4 and Figure 1. Table 4 presents the (averaged) part-worth utilities of each level of the attributes, while Figure 1 is the graph description of the attributes importance. The constant whose value is 5.771 (Table 4) represents a stochastic error obtained through regression analysis, and it is used to calculate the total utility of each profile. A high value of the Pearson coefficient, 0.983, confirms the high level of significance of the obtained results. Similarly, a high value of the Kendall correlation coefficient, 0.899, indicates a high level of correlation between the observed and the estimated preferences. The Kendall coefficient for two holdout profiles has a value of 1.000, which is an additional indicator of the high quality of the obtained data. The signs of the part-worths are in line with the a priori expectations. For example, a negative sign is attached to the level which indicates that there is no work experience. Respondents showed the expected behavior for all other attributes, with the highest level having the highest utility. These results can be regarded as an indication of the theoretical validity of the questionnaire, i.e. the extent to which the results conform to the a priori expectations. As Figure 1 shows, the most important attribute is Proactivity, with an importance value of 16.69%. Slightly less important is the attribute Work Experience, with a value of 15.22%. Attributes with a relatively higher importance are also Interview preparedness (12.08%) and Education (11.02%). A moderately important attribute is Problem solving and creativity (9.80%) followed by three equally important attributes Computer skills, Communication Skills and Team working skills (importance value = 9.63%). By far the least important attributes are Foreign Language and Organizational skills, whose importance values amount to 3.55% and 2.73%, respectively. Management Journal for Theory and Practice Management 2012/63 Attribute Education Work Experience Foreign languages Computer skills Communication skills Problem solving skills and creativity Team working skills Organizational skills Proactivity Interview preparedness Table 4. Averaged part-worth utilities Attribute level Bachelor Master, general Master, specialized None Practice Work One language More languages Basic Advanced Fair Good Fair Good Team work orientation Individual work orientation Average Good Yes Insufficient Insufficient Yes 5.771 Part-worth utilities -0.164 -0.188 0.352 -0.427 0.109 0.319 -0.087 0.087 -0.236 0.236 -0.236 0.236 -0.240 0.240 0.236 -0.236 -0.067 0.067 0.409 -0.409 -0.296 0.296 0.095 Std. Error 0.114 0.134 0.134 0.114 0.134 0.134 0.086 0.086 0.086 0.086 0.086 0.086 0.086 0.086 0.086 0.086 0.086 0.086 0.086 0.086 0.086 0.086 Constant Correlations between observed and estimated preferences Pearson's R Kendall's tau Kendall's tau for 2 Holdouts 0.983 0.899 1.000 Significance = 0.000 Significance = 0.000 Part-worth utilities reflect the sensitivity of respondents to change of attribute levels (see Figure 2). It may be noted that all attributes included in the study are extremely sensitive to level changes, but in the case of three-level attributes this sensitivity varies depending on the interval. For example, when we observe the attribute Work Experience, the preferences decline much faster in the interval Internship-None than in the interval Employment-Internship. In the case of attribute Education, only the best level (master specialized) increases the overall preferences, while the medium (master general) and lowest (bachelor) decrease them. These two levels have a negative sign of part-worth utilities. Figure 1. Averaged attribute importance values Management Journal for Theory and Practice Management 2012/63 Figure 2. Part-worth utility functions Characteristics that describe the best candidate are: Specialized Master degree in education, has work experience, speaks two or more foreign languages, has advanced computer skills, has strong communication skills, he/she is very creative and skilled in problem solving, oriented to teamwork, possess good organizational skills, is proactive and well prepared for the interview. Conslusion To determine the skills and competencies for the business manager position which recruiters particularly prefer conjoint analysis was used in this paper. To our knowledge, this is the first study to use this approach for that purpose in Serbia. Research has shown that potential employers consider the proactivity as the most important attribute, while number of foreign languages and organizational skills are of least importance. They stressed that they more often pick proactive candidates due to the lack of time for the training of hired workers. Because of the shorter training, selected candidates must be skilled, resourceful and capable of quickly incorporating into the new work environment. Since the goal of the research was to show the applicability of conjoint analysis to determine the recruiters preferences toward key competencies for a business manager position, the findings obtained and presented above confirm that our task is successfully accomplished. The findings of the study are significant both on a theoretical and an applied levels. On a theoretical level, they add to our knowledge of the relative importance of some factors influencing recruiters preferences. On the applied level, the results provide useful information both to students (the potential candidates) and university teachers (those that guide and educate candidates). Indeed, this information could help teachers to provide students more effectively with appropriate skills and competencies needed for their future employment. 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Management Journal for Theory and Practice Management 2012/63 About the Author Milena Popović University of Belgrade, Faculty of Organizational Sciences e-mail: djurovicmilena86@gmail.com Milena Popović received her B.Sc. degree in Management from the Faculty of Organizational Sciences in Belgrade in 2010. Currently, she works as teaching assistant at the Faculty of Organizational Sciences at the University of Belgrade, where she lectures courses in the Operations Research field. Her research interests are related to Mathematical Modeling and Game theory. Marija Kuzmanović University of Belgrade, Faculty of Organizational Sciences, e-mail: marija.kuzmanovic@fon.bg.ac.rs Marija Kuzmanović is assistant professor in Operations Research and Game Theory at the University of Belgrade, Faculty of Organizational Sciences. She obtained PhD degree from Department of Operations Research and Statistics, Faculty of Organizational Sciences. Topics of her research include analysis and application of mathematical modeling, conjoint analysis, game theory and other quantitative methods in marketing and management. Milan Martić University of Belgrade, Faculty of Organizational Sciences e-mail: milan@fon.bg.ac.rs Milan Martić is professor of Operations Research, Performance Measurement Methods and Game Theory at the Faculty of Organizational Sciences, University of Belgrade. His research interests include analysis and application of mathematical modeling, data envelopment analysis and game theory. Management Journal for Theory and Practice Management 2012/63 Dima Alberg Department of Industrial Engineering and Management, SCE - Shamoon College of Engineering, Beer-Sheva, Israel Incremental Interval Regression Tree Learning with Mean Variance Numerical Data Streams UDC: 005.521 ; 005.82 DOI: 10.7595/management.fon.2012.0013 XIII International Simposium SymOrg 2012, 05-09 June 2012, Zlatibor, Serbia In this paper, we present a novel method for interval regression tree incremental learning with mean variance patterned numerical data streams. The proposed Mean Variance Interval Regression Tree (MVIRT) algorithm transforms continuous temporal data into two statistical moments according to a user-specified time resolution and builds a regression model tree for estimating the prediction interval of the target variable. The algorithm main properties are time - based incremental mean variance tree induction algorithm accompanying novel time resolution and outliers detection mechanism. Results of real world data stream show that the MVIRT algorithm produces more accurate and easily interpretable prediction models than other state-of-the-art batch incremental model tree methods. Keywords: prediction, regression tree, incremental learning, data stream mining, interval prediction 1. Introduction A sequence of instances, such as sensor transmitted data, geospatial location, tick - by - tick stock prices and exchange rates, electric signals and voltage, the values of which may be recorded and observed continuously in time, is called a data stream. The sources of data streams include meteorological and financial data, network monitoring, web applications, sensor networks, etc. In regression, the attribute for which values are being predicted is numeric (continuous-valued and ordered) rather than categorical (discrete valued and unordered). This attribute can be referred to as the predicted attribute. Note that regression7 can also be viewed as a mapping function, Y=f(X), where X is the input and the output is a continuous or ordered value Y. Thus, the regression problem in data streams will be considered as the problem of learning a function of several input attributes from the past data stream with the goal of estimating as accurately as possible the value of a numerical target attribute in the future data stream. The classical batch regression tree methods for predicting a numerical target variable build upon the supervised divide-and-conquer approach. In terms of the terminal node (leaf) representation, these methods can be classified into following categories: constant or mean value model interval prediction The main difference between the methods is that the model and the interval representations, unlike the mean value approach, employ more complex prediction models with the aim of improving the target variable prediction accuracy. An efficient batch regression model tree algorithm ensures that the model construction and prediction can be processed with consistently improving accuracy, as new information is incorporated. Moreover, smaller trees, i.e., those which do not have too many splits, are easier to get and to interpret. In many real world applications, which contain large data masses the regression model tree fast processing and ease of interpretation is just as important as predictive accuracy 6, 10. According to Holmes et al.8 the batch - incremental algorithms place hard restrictions on regression tree learning. First, a model must be induced incrementally. Second, the instances processing time must keep up with their speed of arrival. Third, a model may only use a constant amount of memory while providing an Management Journal for Theory and Practice Management 2012/63 accurate and updated prediction model at any point in time. Therefore to overcome these restrictions Bifet et al.3, 4 introduced the new class of the ensemble batch - incremental algorithms. These algorithms usually apply an ensemble of sliding window methods and split the data stream into a stream of disjoint batches whereas each data batch can be processed in the order of its arrival using one of batch regression tree algorithms, which are discussed much deeper in the next section. Mining data streams with model 2. Mining data streams with model tree regression methods Although regression trees are well-studied class of learners, little research has been done in the area of incremental regression tree induction. The problem becomes even harder if the learning must deal with continuous data streams. That means that the regression tree learner becomes fully incremental and must be updated with every new arriving instance. In an incremental learning system, the data instances arrive sequentially in time. Each instance represents a snapshot of the changing environment system at time t. Since data streams are very long and often open-ended, the system must be updated using one instance at a time. Each instance is discarded as soon as it is used for updating. Potts11, 12 brings together the batch and incremental versions of the two splitting rules of regression linear model tree with two uni(cid:0)ed frameworks Online - RD and RA. The proposed tree models are built from the top down, using one of two statistical tests to determine both the split point and whether to carry on splitting. They use the Chow4 test, a standard statistical test for homogeneity amongst sub-samples. Alberg and Last1,2 introduced MOPT (Mean Output Prediction Tree) algorithm for interval prediction of numeric target variables from temporally aggregated numerical data, where each aggregated data instance is represented by its mean and variance. The proposed algorithm differs from the state-of-the-art regression algorithms in the splitting of each input and output feature to two moments according to the input time resolution and it can also identify the most appropriate prediction time resolution that minimizes the prediction error and builds more compact interval based regression tree. The main disadvantages of the MOPT algorithm are posed by the fact that is not using an explicit time resolution detection mechanism and thus is not suitable for dealing with massive data streams, which may include distribution change patterns and can require excessive memory and processing power resources. Ikonomovska et al.9 describe the FIMT-DD (Fast and Incremental Model Tree with Drift Detection) algorithm which is an advanced adaptation of the FIMT (Fast and Incremental Model Tree) and FIRT (Fast and Incremental Regression Tree) algorithms and uses an explicit change detection method (DD) for dynamic environments and time-changing distributions. The main difference between FIRT and FIMT algorithms lies in the fact that FIRT has no linear models in the leaves. According to the authors, the main advantages of the FIMT-DD are that it is competitive with batch algorithms in terms of accuracy, enables local change detection, and avoids the costs of re-growing the whole tree when only local changes are necessary. The common disadvantage of the represented methods that they are unable to detect changes properly and adapt their tree models with a minimal loss of accuracy. A simple way to cope with this problem is to calculate every possible splitting point. As a result, the task becomes computationally expensive and it has a negative effect on the algorithm scalability. This non-trivial problem raise the need of incremental algorithms with fast execution and response time, which are able to detect changes properly and adapt their tree models with a minimal loss of accuracy. 3. The Mean Variance Interval Regression Tree MVIRT Methodology The Mean Variance Interval Regression Tree (MVIRT) algorithm introduced in this paper requires continuous aggregated temporal variables, represented in the form of two unbiased estimators (sample average and variance) and produces an interval batch incremental interval regression tree for a numeric target variable Y. In our algorithm the average and variance of each variable will be mapped in univariate Mahalanobis distance Management Journal for Theory and Practice Management 2012/63 based on auxiliary control variable M (.) that should respond to changes in both statistical moments. The proposed approach enables to ignore outliers, which cause prediction instability and model overfitting effect, and thus achieve a considerable reduction in the size of the induced tree. (1) Suppose that each instance i of input variable X is represented by two aggregated mean and variance estiand mators for a given temporal measurement aggregation resolution r. Let xA and xS be the sample variance of the corresponding unbiased estimators. The corresponding sample covariance be be the sample average values over all instances, and let VA and VS tween measured statistical moments of the input variable X is calculated by: is denoted by VAS and the Mahalanobis distance between the two (2) To identify outlying values of Mi we need to determine its probability distribution. The proposed distance metric under the null hypothesis (which includes the assumption of multivariate normality of X variable) has a chi square - distribution with two degrees of freedom and express Mahalanobis multivariate standardized distance between the values of the current two first moments. For example, if the input variable averages remain at the values xA and xS then values of M(.) should be less than the is the upper α percentage point of the chi-square distribution with two degrees of freedom. If at least one of the averages shifts to some new value, then the probability that the statistical moment exceeds the limit increases. In the tree induction algorithm the confidence interval limits of the M distance metric are calculated by: and greater than 0, where (3) where r is a temporal aggregation resolution. 4. The MVIRT Tree Splitting Procedure In the instance splitting stage of the MVIRT algorithm we assume that we have a set of n training instances at a given node. The pseudo code in Figure 1 finds the best split for predicting the mean of a numeric target variable. This procedure applies to splitting the values of bivariate numeric input variables, where each variable is represented by the sample mean AVG(X) and variance VAR(X) according to the predefined temporal aggregation resolution r. The splitting procedure includes three main steps. The first step consists of the Mahalanobis distance calculation for numeric input variable X in every instance (see Equation 2) and outliers detection procedure. The second step contains incremental time resolutions logic mechanism which increases current time resolution TR when all input variables instances are outliers. It should be noted that if the number of outliers equals to the number of training instances, then the algorithm ignores a given input variable and shifts to the next one or returns the tree. The third final step is aimed at selecting the best estimator (sample average or variance) for input variable. In this step, the algorithm calculates the absolute differences ratio between the value of MXY and the values of the estimators MAVG and MVAR in the best splitting instance of X and chooses the best node estimator (Best_Contributor), which minimizes that difference ratio. Management Journal for Theory and Practice Management 2012/63 MVIRT((cid:302), TR, X, Y) splitting procedure Input Args: User defined , (cid:302) Current time resolution, r The mean-variance input variables, X The mean-variance target variable, Y The best split point for input attribute X Output: Pseudocode body: # Calculate the Mahalanobis distance vector for input variable MX For each instance Do: MX = M (AVG(X),VAR(X)) (formula 2) Next #Outliers detection & droping procedure šCć = null If MX((cid:302)) is not outlier (formula 2) Then šCć + + # Non outliers data instances collection End If # Time resolution setting If šCć is empty Then #Shift to the next input variable Call recursively MVIRT((cid:302) , TR, X, Y) If all input variables instances are outliers (concept drift is detected) Then # Increase time resolution TR for current input variable TR = r - - If TR is empty Then Return MVIRT Tree Else Call recursively MVIRT((cid:302), TR, X, Y) End If End If # Best contribution variable detection For each instance in šCć Do: MY = M (AVG(Y), VAR(Y)) MXY = M (M(X), M(Y)) #Mahalanobis distance between averages of X and Y MAVG = M (AVG(X), AVG (Y)) (formula 2 ) #Mahalanobis distance between variances of X and Y MVAR = M (VAR(X), VAR (Y)) (formula 2) Next Best_Contribution_Ratio = Max(đMXY - MAVG đ,đ MXY - MVARđ)/ đMXYđ #Best split value for current input variable X in time resolution TR Return Split (TR; Best_Contributor (Avg/Var) ; Best_Split_Value ) Figure 1: MVIRT splitting criterion pseudo code  (1) (2) (3) Management Journal for Theory and Practice Management 2012/63 5. The MVIRT Tree Leaf Construction Procedure In each terminal node the MVIRT algorithm computes the bounds of a prediction interval for the corresponding tree leaf with a user-defined confidence level 1-α using the following equations: (4) are tree leaf instances and where , represent mean and standard deviation estimators of the tree leaf. Thus, when the confidence level equals to zero (i.e. α =100%) then the corresponding values of t0.5 and z0.5 distributions are equal to zero, the MVIRT model transforms the interval representation of a tree leaf into the sample average of the target variable. This fact is very useful in the sense of experimental comparison between MVIRT tree and other, point estimation regression tree algorithms. 6. El Nino Data Set The El Nino data stream is available at the UCI KDD Archive (http://www.ics.uci.edu). This data was collected with the Tropical Atmosphere Ocean (TAO) array, which was developed by the international Tropical Ocean Global Atmosphere (TOGA) program (http://www.pmel.noaa.gov). The TAO array consists of nearly 70 moored buoys spanning the equatorial Pacific, measuring oceanographic and surface meteorological variables critical for improved detection, understanding and prediction of seasonal to inter-annual climate variations originating in the tropics, most notably those related to the El Nino/Southern Oscillation (ENSO) cycles. This data stream was collected on a daily basis and contains 178,080 numerical instances from March 1980 to June 1998. Each instance in the data stream has the following numerical attributes: date, latitude, longitude, zonal winds (west<0, east>0), meridional winds (south<0, north>0), relative humidity, air temperature, sea surface temperature and subsurface temperatures down to a depth of 500 meters. The latitude and longitude in the data showed that the buoys moved around to different locations. The wind data, both the zonal and meridional winds fluctuated between -10 m/s and 10 m/s. Relative humidity values in the tropical Pacific were typically between 70% and 90%. Both air temperature and sea surface temperature fluctuated between 20 and 30 degrees Celsius. The target (prediction) attribute in the El Nino data stream is sea surface temperature (SST), which is identified as warmer than normal sea surface temperatures. There are missing values in the data. As mentioned earlier, not all buoys are able to measure current attributes because these values may be missing dependent on an individual buoy. The missing values replacement operation was performed with both time series neighbors average value interpolating procedure. Finally in order to evaluate the predictive performance, the set of all examples was split into learning and testing examples sets in proportion 70:30. The MVIRT algorithm performance is compared to three state-of-the-art incremental model tree algorithms implemented by the Rapid Miner and tuned with time series plug-in: M5P13, M5-Rules14, RepTree14. Due to the memory and time constraints, it was very important to evaluate the capabilities of all algorithms to learn incrementally and correctly and at the same time to construct an appropriately small model tree. Therefore in each experiment we applied the constant months sliding window mechanism. These algorithms do not typically provide interval predictions, therefore, to overcome this limitation we have used the average sliding windows mean estimator to make point predictions in our comparative evaluation experiment. Finally, in order to improve the algorithm scalability, we tuned M5P and RepTree with bagging evaluation mechanism which was implemented in Java API of WEKA package. The results in Table 1 show that under Average Root Mean Square Error (A[RMSE]) and Average Explained Variability (A[EV]) criteria the MVIRT and the RETIS-M algorithms are more accurate than other proposed algorithms in terms of pair-wise t-Student test difference. We have denoted by * the cases where the p value of the difference between MVIRT and other algorithms is smaller than or equal to 5%. The MVIRT algorithm outperforms significantly the other algorithms in terms of Average Cost Complexity Measure (A[CCM]). Fi Management Journal for Theory and Practice Management 2012/63 nally, we maintain that our proposed MVIRT tree models are more interpretable than RETIS tree models in terms of Average Tree Size (A[TS]) measure (7 vs. 23). Table 1: El Nino data set learners comparison Learner B-M5R B-M5P B-REPT M5 RLS M5P TR MVIRT REPT RETIS A[RMSE] A[TS] A[CCM] A[EV] 0.84* 0.83* 1.57* 0.86* 0.84* 0.60 1.57* 0.63 1.01* 1.07* 1.69* 1.03* 1.03* 0.77 1.64* 1.18* 0.46* 0.47* NA 0.45* 0.46* 0.62 NA 0.60 Conclusions and Future Work In this paper, we have presented the two moments MVIRT algorithm, which is able to predict values of numeric attributes in massive temporal data sets. The proposed algorithm differs from the state-of-the-art regression algorithms in the splitting of each input continuous feature according to the best mean variance contributor, identifies outliers in the training data and as result builds more compact interval prediction tree. The conducted experiment indicate that the proposed MVIRT algorithm produces more accurate and compact models by comparison to the state-of-the-art regression tree algorithms. In our opinion, the proposed algorithm is only the first step towards a family of truly scalable and fast regression tree algorithms. We see two immediate extensions for the future work. First, our general aim is to construct online accurate and robust multi-r target variable forecasting mechanism, which in turn can be used for massive data streams prediction. Second, we can look into other possible analytical methods for the split point selection, which may reduce the algorithm time and space complexity. REFERENCES [1] Alberg, D., Last, M., Neuman, R., & Sharon, A. (2009). Induction of Mean Output Prediction Trees from Continuous Temporal Meteorological Data. 2009 IEEE International Conference on Data Mining Workshops (pp. 208 - 213). Miami, Florida, USA: IEEE Computer Society. [2] Alberg, D., Last, M., & Kandel, A. (2011). Knowledge Discovery in Data Streams with  Regression Tree Methods. WIRES Data Mining and Knowledge Discovery , 69-78. [3] Bifet, A., Holmes, G., Pfahringer, B., Kirkby, R., & Gavaldà, R. (2009). New Ensemble Methods for Evolving Data Streams. In 15th ACM SIGKDD Intl. Conference on Knowledge Discovery and Data Mining (KDD09). Paris, France. [4] Bifet, A., & Kirkby, R. (2009). Data Stream Mining A Practical Approach. COSI. Available at http://www.cs.waikato.ac.nz /čabifet /MOA. [5] Chow, G. (1960). Tests of Equality between Sets of Coefficients in Two Linear Regressions. Economet rica, 28 (3), 591 605. [6] Friedman, J. (1991). Multivariate Adaptative Regression Splines. In Annals of Statistics, 1 - 19. [7] Granger, C., & Newbold, P. (1986). Forecasting in Business and Economics (2nd Edition ed.). Academic Press. [8] Holmes, G., Kirkby, R., & Bainbridge, D. (2004). Batch Incremental Learning for Mining Data Streams. Hamilton: University of Waikato, Department of Computer Science, New Zealand. [9] Ikonomovska, E., Gama, J., & Dzeroski, S. (2010). Learning Model Trees from Evolving Data Streams. Data Mining and Knowledge Discovery Journal, Springer, (pp. 1 - 41). [10] Krzanowski, W., & Hand, D. (2007). A Recursive Partitioning Tool for Interval Prediction. In Proceedings of the ADAC (2007), 1, pp. 241 - 254. Management Journal for Theory and Practice Management 2012/63 [11] Potts, D. (2004). Incremental Learning of Linear Model Trees. Proceedings of the 21st International Con ference on Machine Learning (pp. 663 - 670). ACM. [12] Potts, D., & Sammut, C. (2005). Incremental Learning of Linear Model Trees. Machine Learning, 5 - 48. [13] Quinlan, J. (1993). Combining Instance-Based and Model-Based Learning. In Proceedings of the 10th International Conference on Machine Learning (pp. 236 - 243). Morgan Kaufmann. [14] Witten, I., & Frank, E. (2005). Data Mining: Practical Machine Learning Tools and Techniques (2nd ed.). Morgan Kaufmann. Receieved: April 2012. Accepted: June 2012. About the Author Dima Alberg Department of Industrial Engineering and Management, SCE - Shamoon College of Engineering, Beer-Sheva, Israel e-mail: dimitria@sce.ac.il Dr. Dima Alberg is lecturer at the Industrial Engineering and Management Department, SCE Shamoon College of Engineering, Israel. He received his B.A and M.A. in Economics and Computer Science from Ben-Gurion University of the Negev. He also received his Ph.D. degree in Information Systems Engineering from the Ben-Gurion of the Negev, Israel. His current research interests are in business intelligence, financial time series data mining, and machine learning. Management Journal for Theory and Practice Management 2012/63 Sladjana Benković1, Marina Dobrota2 1,2 University of Belgrade, Faculty of Organizational Sciences Application of Teaching Methods and Techniques at Serbian Universities: Progress Over Time UDC: 378.147 ; 005.336.1:378.014.3 DOI: 10.7595/management.fon.2012.0007 The aim of this paper is to draw attention to the results of a research conducted at four biggest universities in Serbia, which refer to the application of teaching methods and techniques used at universities in Serbia. The starting point for this paper is the research that came about as a consequence of a regional research project conducted by scholars of the American Council for Higher Education in 2009; it was the first time that the project participants had conducted a survey among university lecturers of the southeastern Balkans, including Serbia. It was noted on this occasion that the share of information technology, especially distance learning, in teaching is extremely low. We used those results as a starting point for a new research (two years later), this time on a sample of 153 subjects. We have concluded that, even though the situation in Serbia has slightly improved, it is still far from meeting European standards. Keywords: teaching methods, teaching techniques, distance learning, University of Belgrade, higher education 1. Introduction The dependence of the students success on the quality and commitment of the teachers has very often been the topis of discussion (Stronge, Ward & Grant, 2011; Rockoff et al., 2011; Harris & Sass, 2011; Fernandez & Suarez, 2011), and so was the teachers importance and economic value (Hanushek, 2011; Gikandi, Morrow & Davis, 2011; Gamage, Tretiakov & Crump, 2011). This is why the teachers are obligated to actively follow and participate in a learning process, and to be willing to implement modern educational methods and techniques (Pantic & Wubbels, 2010; Maitles, 2010). Education reforms increasingly include the standardization process that in turn ivolves raising the level of knowledge that the teachers have to possess, in connection with the very process of student teaching and learning; consequently, the efficiency and quality of the learning process increase (Jianping & Hsieh, 1999; Devas, 2011). The influence of education reforms on teaching staff and their work is the result of global changes, cultural and social influence of the environment the teachers are working in, as well as the higher education institutions (Tatto, 2006; Brereton, 2011). Introduction of standards in the learning process is especially important and represents an integral part of a quality education system. It gives a clear view of many advantages and positive aspects (Van Maele & Van Houtte, 2010) as well as shortcomings that are obvious in education. Apart from standardization, the new vision of higher education offers an open approach and changes and has a special role in providing economic and social development of the society and social cohesion. The new tendencies are directed towards students, towards different didactical approaches and strategies, a better quality communication between students and teachers, which at the same time points to new, qualitatively different relationships and partnerships in the community (Kennedy, Hyland & Ryan, 2006). International tendencies in education point to the shift of the focus of interest from the teacher centered approach towards the approach that is more outcome oriented. That tendency flourished with the Bologna Process, which emphasizes student-oriented learning and the need for greater precision and clarity while designing teaching curricula, as well as their contents. It is obvious that learning outcomes are crucial for Management Journal for Theory and Practice Management 2012/63 transparency and scope of qualifications, which also contributes to application of many guidelines of the Bologna Process within European Higher Education Area. The Bologna Process, as yet another European Union policy, is being implemented slowly in Serbia, sometimes interpreted quite frivolously, but much talked about. It is often forgotten that the Bologna Declaration does not represent a limitation to education policy. Moreover, it opens up space for the development of a national education policy, which is in accordance with the interests of the country in relation to the European Union. It means that, with appropriate partnerships, it is possible to have a more intense exchange of knowledge, teachers and students, to create more opportunities for projects, and especially important, to achieve a better match between the available teacher knowledge and the needs of a higher education institution. Therefore, competence, as well as teachers methods and techniques at the universities in Serbia should correspond to the competencies of their colleagues at the universities in the European Union. That is exactly what can ensure the university teachers in Serbia engagement at the European Union universities, and enable the students to continue their studies and their degrees to be recognized outside of Serbia. This paper is divided into several units. The second chapter gives a short overview of the education system in Serbia; it tries to point to the most obvious problems and limitations that the education system in Serbia will face on its way towards the European Union system. The third chapter describes the framework of the research. Since this paper is an extension of the research originally conducted in 2009, the fourth chapter presents the changes at the universities in methods and techniques used. Finally, conclusion remarks are given in the last section. 2. Higher education in Serbia Serbia stands before a great challenge that comes out of efforts to adopt and implement the European Union education standards, with the goal of joining the common European education area. Therefore, education economy is an important factor in higher education in Serbia, even though in Serbia it most often amounts solely to discussion on sources of financing. Representatives of the Ministry of Education and Science have therefore emphasized several times in the last few years that one of the strategic goals in Serbia is to increase its highly educated population, which at the same time means an increase in financial means for higher education. That is strongly supported by the fact that among the population of 15 years and older, according to the education level and literacy, there are only 6.5% of highly educated people in Serbia (Kutlaca et al., 2011). Serbia is one of the last countries in Southeast Europe to go through economic and social transformation (Kogan, 2011). If we analyze the investments in higher education in Serbia, it is evident that there is some discrepancy when compared to the EU countries. Between 2005 and 2010, the rate of allocation from the budget for higher education was between 0.55 and 0.67% of gross domestic product (GDP). At the same time, if we look at the rate of budget allocations for higher education in the EU countries, it varies between a minimum of 0.8 % GDP in Bulgaria and Romania and up to 2.4 % GDP in Denmark. The average rate of monetary allocations in the EU is at the level of 1.2 % GDP (Bojkovic & Ostojic, 2010). Based on these data it is clear that Serbia will have to find additional means in order to achieve at least the lower limit of funds allocated for higher education in the EU countries. However, improvement of higher education does not exclusively mean increase in allocated funds. The teaching process at higher education institutions constantly has to be evaluated by the existing system and institutional solutions, i.e. it is necessary to increase the existing level of knowledge and availability of relevant information in the education process, as well as to improve the efficiency and effectiveness of the existing system. In recent years, open and distance learning have gone through three generations. The first generation was correspondence teaching where a single medium, such as a text, is used in conjunction with the postal service as a means of delivery. The next generation involved multimedia distance learning, where text-based material is supplemented by interaction with the instructors either in face-to-face settings or via technologies such as electronic mail. The third and most recent generation is interactive multimedia distance education, where heavy emphasis is placed on the use of information technology to facilitate the communication (Petrovic et al., 2011) Management Journal for Theory and Practice Management 2012/63 However, Students learning process still relies on the traditional ex-cathedra method, which treats the teacher as someone who passes knowledge, with clearly defined ways of learning testing and student evaluation. The learning and teaching process in Serbia is still largely based on acquiring factual knowledge, which discourages student participation in the learning process, as well as any initiative on their part (Klenha et al., 2010). Therefore it is necessary to transform the system as it goes along, i.e. to obligate teachers employed at higher education institutions to lifelong learning, i.e. periodical trainings and seminars, and also offer some categories of teachers a longer, more formal education, primarily in the use of foreign languages and information and communication technology and skills (Mujicic, 2011). That is the only way for teachers employed at higher education institutions in Serbia to offer the quality of learning recognized at the universities in the EU and the world, with their knowledge, methods and techniques of student teaching. That is also the only way for teachers from Serbia to be able to go abroad, to ensure acceptance of higher education degrees for students from Serbia, and to improve the learning process, making it more efficient, interesting and easier at the same time. The aim of the paper is to point to the teaching methods and techniques used by university professors in Serbia, i.e. to the balance between the implementation and use of IT (informational technology) supported methods and techniques and traditional teaching methods and techniques. The starting point for this paper is the research that came about as a consequence of a regional research project conducted by scholars of the American Council for Higher Education in 2009. That was the first time that a survey was conducted by the project participants among university lecturers about methods and techniques used in higher education in some countries of the southeastern Balkans. Serbia is only one of the countries where the research was conducted in 2009. As participants of that project, we used the results obtained in Serbia as a starting point for this paper, comparing the results from 2009 with the results of a repeated research from 2011. Even though the data were compared from a relatively short time distance, it was possible to draw appropriate conclusions and answers to simple hypotheses defined while writing the paper; those are only partial answers to questions that the project we are currently participating in (Infrastructure for electronically supported learning in Serbia) should answer. The results from 2009 on the application of electronically supported learning were quite worrying, so we wanted to reevaluate the situation two years later, viewing this learning method as only one of the learning methods included in the research. 3. Framework of the research The research included the biggest state universities in Serbia, i.e. the University of Novi Sad, University of Belgrade, University of Kragujevac and University of Nis. The conducted survey was anonymous. The research strove to get a representative sample, since a large number of teachers (especially associate and full professors) during 2009 were not really willing to participate in the survey. The situation was slightly better in the 2011 survey, although there was a repeated animosity against the research. The questionnaire used in the research consisted of two parts. The first part included questions of demographic type as well as data on university, faculty, department, research area, academic title, as well as the period of employment at the university. At the same time, it allowed for the researchers to collect information on current scientific degree of the test subjects, as well as the number of subjects and the number of students they teach. The second part of the questionnaire was related to questions about the frequency of use of some methods and techniques in teaching. The methods that were considered at that time referred to lectures, seminar papers, workshops, case studies, field research, simulation, service learning, distance learning, team projects, group projects, research projects. The techniques that were offered in the questionnaire referred to the use of PowerPoint presentations, overhead transparencies and overhead projector, markers and board, flip chart. The subjects were also asked about the implementation of alternative methods and techniques used to stimulate the students interest in the subject matter, considering guest professors from other departments/faculties/universities, students critical opinion, creation of portfolios, collaborative learning. Management Journal for Theory and Practice Management 2012/63 There were 55.6% subjects from the University of Belgrade, 19.6% from the University of Novi Sad, 14.4% from Kragujevac, while 10.5% of the subjects were from the University of Nis. The duration of employment of the subjects at higher education institutions was between half a year to 40 years of service, with the mean value of 12.16, i.e. SD=9.51. Table 1 gives an overview of structural composite of the teachers according to their academic title. It can easily be noted that the assistants and assistant professors responded to the questionnaire in a much greater number in 2011, as they had in 2009. Table 1. Structure of the subjects scientific degree in 2009 and 2011 Scientific Degree 2009 Total % Belgrade Country Assistant Assistant Professor Associate Professor Full Professor Total  48.70 27.92 12.99 10.39  100.0      Scientific Degree 2011 Total % Belgrade Country Assistant Assistant Professor Associate Professor Full Professor  52.94 24.84 11.11 11.11 Total 100.0   Table 2. Teachers fields of expertise in 2009 and 2011 Social Sciences Technical Sciences Natural Sciences Medical Sciences Total Field of Expertise 2009 Total % Belgrade Country  Field of Expertise 2011 Total % Belgrade Country 87.18 9.62 - 3.21 -  -  - Social Sciences Technical Sciences Natural Sciences Medical Sciences  60.78 15.69 5.88 17.65 100.00  Total 100.00   From the aspect of the science they belong to, the structure of the subjects is presented in Table 2. It can easily be noted that the sample collected in 2011 is more diverse than the one from 2009, and that there are fewer teachers from natural, technical and medical sciences; still, the percentage of subjects willing to participate in the survey is higher at the University of Belgrade than at the other universities in the country. 4. Results of the comparison As it has been mentioned, the starting point for this paper is the research conducted in 2009. After the repeated survey two years later, the goal of our research was to determine: a) If there had been any changes in the structure of methods and techniques that higher education teachers in Serbia use, b) If the share of IT-supported teaching methods and techniques increased in Serbia. The use of IT-supported technologies is one of the basic skills that higher education teachers nowadays should possess. It is certainly necessary because, among other things, it enables a transfer of knowledge outside traditionally established boundaries as well as a regular communication with students that is not limited by time or place. One of the basic assumptions of comparative analysis is that teachers at higher education institutions use IT-supported teaching methods and techniques to a higher degree in comparison with two years before. The frequency of use of teaching methods in 2009 and 2011 is shown in Table 3. Management Journal for Theory and Practice Management 2012/63 Data analysis shows that there was a slight improvement in 2011 in the use of information and communication technology. While in 2009 only 1.64 % of teachers used distance learning as a teaching method, the percentage went up to 7.84% in 2011. The frequency of use of teaching techniques in 2009 and 2011 is shown in Table 4. We can note that the percentage of teachers who use PowerPoint presentation as a teaching technique has increased as well. Table 5 presents the frequency of use of alternative teaching methods and techniques. Since the results obtained in 2009 on the application of IT-supported learning were worrying, we can conclude that, even though it is still unsatisfactory, the situation has slightly improved. In the last two years some faculties have introduced the distance learning system, so this teaching method is slowly entering Serbia as well. The same goes for simulation and research as teaching methods; those include knowledge of information and communication technologies. It can also be seen that the percentage of teachers who use PowerPoint presentations as a concept to prepare their lectures has increased. Table 3. Comparing the use of teaching methods in 2009 and 2011 Teaching methods 2009 More than Never Occasionally occasionally, but Often not so often 7.61 33.33 15.38 78.48 1.96 27.17 20.59 7.69 15.19 31.37 20.59 72.09 75.41 20.69 23.81 25.74 12.79 8.2 9.2 28.57 26.73 21.57 5.43 27.45 15.38 2.53 17.65 13.95 8.2 25.29 19.05 13.86 Giving lectures Essay writing Critical thinking skills in the classroom Case studies Outdoor lecturing Experimental work or simulation of real problem Service Learning Distance learning Team projects Group Projects and/or team - building Research projects  Giving lectures Essay writing Critical thinking skills in the classroom Case studies Outdoor lecturing Experimental work or simulation of real problem Service Learning Distance learning Team projects Group Projects and/or team - building Research projects 1.96 2.61 25.49 22.22 56.86 5.88 11.76 26.8 20.92 20.92 38.56 23.53 71.24 49.02 23.53 40.52 31.37 18.3 20.92 22.88 22.22 24.18 9.8 15.69 17.65 11.11 11.76 13.07 1.31 11.11 13.73 12.42 20.92 Teaching methods 2011 More than Never Occasionally occasionally, but Often not so often 26.47 3.92 Very often/ Always 69.61 21.74 13.73 43.59 1.27 1.64 24.14 8.91 Very often/ Always 64.71 39.87 6.86 38.04 4.9 17.95 2.53 1.16 6.56 20.69 28.57 24.75 17.65 30.07 15.69 14.38 25.49 3.92 20.26 6.54 13.07 11.76 5.88 11.11 19.61 3.27 7.84 20.26 13.73 11.11 16.99 6.54 TOTAL (%)   TOTAL (%)   Management Journal for Theory and Practice Management 2012/63 Table 4. Comparing the use of teaching techniques in 2009 and 2011 Never Occasionally More than occasionally, but not so often Teaching techniques 2009 PowerPoint presentation Graphic displays Blackboard and marker Flip chart  13.27 43.82 38.66 53.47 8.16 26.97 15.13 10.89 12.24 19.10 4.20 22.77 Teaching techniques 2011 Never Occasionally More than occasionally, but not so often PowerPoint presentation Graphic displays Blackboard and marker Flip chart 6.54 67.97 18.30 62.09 12.42 12.42 13.73 13.73 5.88 15.69 21.57 17.65 Often 24.49 5.62 7.56 8.91 Often 16.99 1.31 19.61 3.92 Very often/ TOTAL Always 41.84 4.49 34.45 3.96 (%)  Very often/ Always TOTAL (%) 58.17 2.61 26.80 2.61  Table 5. Comparing the use of alternative teaching methods and techniques in 2009 and 2011 Guest lectures Critical thinking skills in the classroom Portfolio assessments Collaborative learning modules  Alternative methods and techniques 2009 Never Occasionally More than occasionally, but not so often 30.92 0.00 53.91 22.54 40.79 0.66 17.39 20.42 15.13 4.64 8.70 22.54 Alternative methods and techniques 2011 Never Occasionally More than occasionally, but not so often Guest lectures Critical thinking skills in the classroom Portfolio assessments Collaborative learning modules 36.60 2.61 54.25 33.33 39.87 2.61 26.14 26.14 9.15 9.15 7.19 14.38 Often Very often/ Always 5.92 7.24 TOTAL (%) 30.46 17.39 17.61 64.24 2.61 16.90   Often Very often/ Always TOTAL (%) 11.11 27.45 7.19 16.99 3.27 58.17 5.23 9.15  Management Journal for Theory and Practice Management 2012/63 Conslusion The comparison of the research conducted in 2009 and 2011 has led us to certain conclusions. We think that students success and achievements depend on the teachers competence, but also on their ability to implement modern teaching methods and techniques. A lecturer (professor) that continuously prepares for teaching, tries to entertain students, but also continuously learns himself and improves his knowledge is considered a quality professor. Teachers professional development is essential for the improvement of teachers quality (Diaz-Maggioli, 2004). The results of a research on the influence of professional development on the key aspect of teacher quality showed that teachers exhibit a significant growth in knowledge after the training (Goldschmidt & Phelps, 2010). We believe that the success of students learning process depends on teachers familiarity with teaching methods and techniques, and their readiness to implement modern teaching methods and techniques. Knowledge of a foreign language and use of information and communication technologies is often an obstacle for teachers to continuously follow modern trends in the transfer of knowledge at the university. However, knowledge of teaching methods and techniques is not sufficient. It also requires willingness and motivation by teachers to incorporate them into the teaching process. Only competent and educated teachers are an intellectual asset of a university. For such a teacher the notion of mobility is not unfamiliar, since they are trained to teach at any leading university, and, what is more important, to represent their university as best as possible at the world market. This statement is extremely important for students as well, since recognized universities at the world level at the same time mean recognized diplomas for students who graduated in Serbia. The research discovered that both in 2009 and 2011 the teachers from the universities in Novi Sad and Belgrade were more willing to answer the questionnaire. It can be assumed that it comes as a consequence of the fact that these two universities operate in economically developed municipalities in Serbia. Also, the University of Belgrade is the biggest university in Serbia, so, since it is located in the capital of Serbia, it has the privilege of receiving the largest financial support from the Ministry of Science and Education due to its 100-year-long tradition and reputation in Southeastern Europe. We have also noticed that the younger generation of university teachers is much more willing to incorporate into their portfolio skills and all new methods and techniques enabled by information and communication technologies. The distance learning concept is the best representative of methods based on application of information-communication technologies, which should enable students who are restricted by geographical distance or financial means and are unable to physically be present at classes and practices in university classrooms to study. The main contribution of this paper is that it highlights the fact that the success of the education process depends on university teachers competency, which also refers to their specific professional competence, as well as methods and techniques they are ready to implement into the student teaching process. It means teachers willingness and readiness to be included into this type of teaching. By all means, attention should be paid to teachers who have decades-long pedagogical and professional experience, but who have not undergone continuous education, so they need additional training in order to adjust to the demands and needs of learning more easily. Distance learning is a method that has a potential to increase the literacy levels in Serbia, since it enables education and some types of learning for people who live outside urban centers, or groups of people who, due to other limitations, are not able to be physically present in university classrooms. Even though the situation in Serbia has slightly improved, it is still far from being in a position to meet European standards. The paper also addresses the needs for additional investments into IT infrastructure. Improvement of higher education process is one of the main tasks for every higher education institution and every Government; therefore, monitoring the influence of teaching methods and techniques at the universities in Serbia will be one of the challenges for us in the future as well. Management Journal for Theory and Practice Management 2012/63 REFERENCES [1] Brereton, P. (2011). A Study of Computing Undergraduates Undertaking a Systematic Literature Review. IEEE Transactions on Education, 54(4), 558-563. doi: 10.1109/TE.2010.2090662 [2] Bojkovic, G., & Ostojic, S. (2010). Financing of Higher Education Institutions from Public Revenue and Role of Branch Trade Unions. Proceedings of the XVI Meeting Development Trends: Bologna 2010: Situation, Doubts and Perspectives. Retrieved on October 5, 2011 at http://www.svos.org.rs/pdfs/trend-2010.pdf. [3] Devas, A. (2011). Widening participation and the media student experience. Higher Education, 62(6), 815-828. doi: 10.1007/s10734-011-9421-3 [4] Diaz-Maggioli, G. (2004). Teacher-Centered Professional Development. Alexandria (USA): ASCD. [5] Fernandez, I., & Suarez, B. (2011). University Competencies. Journal of Materials Education, 33(5-6), 255-262. [6] Gamage, V., Tretiakov, A., & Crump, B. (2011). Teacher perceptions of learning affordances of multi-user virtual environments. Computers & Education, 57(4), 2406-2413. doi: 10.1016/j.compedu.2011.06.015 [7] Gikandi, J.W., Morrow, D., & Davis, N.E. 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Management Journal for Theory and Practice Management 2012/63 About the Author Sladjana Benković University of Belgrade, Faculty of Organizational Sciences e-mail: benkovic.sladjana@fon.bg.ac.rs Sladjana Benković works as an Associate Professor at the Faculty of Organizational Sciences, University of Belgrade, Serbia, where she has completed her bachelor, master and doctoral studies. She has worked at the Faculty of Organizational Sciences for 15 years. Her professional interests regarding research and teaching lie in the field of financial management, methods of financing corporate development, project financing, apprisal and cash flow valuation. Marina Dobrota University of Belgrade, Faculty of Organizational Sciences e-mail: dobrota.marina@fon.bg.ac.rs Marina Dobrota works as a Teaching Assistant at the Faculty of Organizational Sciences, University of Belgrade, Serbia, where she completed her BSc and MSc degrees. Currently, she is a PhD student. Her major professional interests lie in applied statistics, ICT development strategy, data mining in medicine and biostatistics. Management Journal for Theory and Practice Management 2012/63 Marina Rakočević1, Miloš Knežević2, Snežana Rutešić3, Nenad Ivanišević4, Boško Stevanović5 1, 2, 3University of Montenegro, Faculty of Civil Engineering, Podgorica 4,5University of Belgrade, Faculty of Civil Engineering, Belgrade Construction Technology and Quality Control of Works on Atlas Capital Center UDC: 005.22 ; 005.5:69.05(497.16) DOI: 10.7595/management.fon.2012.0010 With the arrival of foreign investors in Montenegro, a need for application of FIDIC international conditions of contracts emergwd. These conditions define in detail the rights and obligations of the contractual parties in the construction process. In some issues these conditions do not comply with the Montenegrin legal system. This paper presents the organization and construction technology with special emphasis on the quality control and procedures for conducting internal and external quality control in the construction of a residential and business building Atlas Capital Center (ACC), which was contracted according to FIDIC Red Book. Key words: structure, construction technology, method statement, quality control, Fidic 1. Organization of construction works The construction works consist of several production processes. Through good organization and sequencing of activities it is possible to increase the productivity, taking into account the required quality and planned deadlines 2. Execution of works is conducted in the following stages: preparation, production/construction and taking over. The preparation phase for the start of the works includes preparation of technical documentation, selection of the Contractor and selection of the Supervisor. This preparation phase includes the acquaintaince of all participants with the technical and contract documentation. The production or construction phase includes: preparatory construction works, construction and craft works, installation works, mounting of equipment and facilities etc. The taking-over phase includes technical inspection and the beginning of the exploitation of the works and the start of the Defects Notification Period. In each of the stated phases, the participants: Investor, Supervision and Contractor, have obligations and responsibilities which are regulated by legislation and contracts. At the beginning of the project the Contractor, based on the mentioned documentation, performs an analysis of events and prepares plans. All significant events need to be followed by written documents. Procedures of information flow are one of the first steps that should be prepared in the production faze of works. These procedures define the way the distribution and control of information will be performed. Modern means of communication allow for a faster flow of information and make communication more efficient. The participants in the project realization will submit the list of mail addresses for external communication 2. General information about the Atlas Capital Center The implementation of the construction contract closed on the basis of the FIDIC Red Book, operation, procedures and documentation which define and verify the key events during construction are described on the example of Atlas Capital Center (ACC). Management Journal for Theory and Practice Management 2012/63 The contract for the construction of an exclusive residential and business building ACC in Podgorica was signed according to FIDICS Conditions of Contract for Construction, Red Book. Investors of this grandiose building are the Atlas Group and the Capital Investment, while the Contractor is the Bitermo Mng Ltd. construction company whose parent company is Bitermo Ltd. from Portorož. Project management, cost management and supervision are entrusted to the company Mace d.o.o. which is part of Mace Group. The basis of the building covers an area of about 10,112.5 m2. The building has four underground floors and, depending on the part of the building, six, nine or eleven above-ground floors. The area of the underground part of the building is 40.450 m2, while the total area of building is about 90.000m2. The underground part of the building is shaped like a triangle and is constructed as one structural unit. In the underground part, three floors are designated for garages and one floor is for commercial purposes. The above-ground part consists of seven structures out of which three are designed for business activities and four are for residential purposes. The building is designed in accordance with the highest standards, with materials and equipment of excellent quality not only in the technical and technological terms, but also in terms of design. 3. Techology of Works and Method Statement The choice of methods and the descriptionof the technological processes for construction, with an appropriate selection and sizing of work resources, is the first step in determing the method and sequence of work, 3,4,5,6. The technology of works needs to be in line with the technical and other necessary building site documentation. Also, it is necessary to comply with the technical requirements for construction works and technical specifications for materials and equipment which will be installed. The Contractor defines the technology of works in accordance with available: - machinery and means of work, - material, - workforce, in order to achieve their optimum usage, required quality of works and time for completion. Based on the above, flow diagrams and process charts are defined. The construction of reinforced concrete structure of the ACC is an example of good organization and technology of works. Using well-defined technological steps, 9,581m3 of concrete and 735 tons of reinforcement, were successfully built into the foundaton slab during the summer time in only 75 days, at extremely high temperatures. On the four underground floors 15,660m3 of concrete and 2,223.9 tons of reinforcement were built into the structural elements during a period of four months. With good organization and proper selection of technological steps, in the above-ground structural elements of ACC complex, about 21.200m3 of concrete and 3.372 tons of reinforcement were built in. The works on the structure were completed within the planned time, meeting the designed quality. At the beginning of the project, before the implementation phase, general technology of works on the concrete structure, in line with the Concrete Design, was given through the Method statement for the structure. During the execution of works, there was a need for a more detailed Method statement for certain positions. A detailed description of the construction technology for the reinforced concrete structure was made according to the types and positions of works. A detailed description of technology was defined for carpentry, reinforcement and concrete works. Management Journal for Theory and Practice Management 2012/63 Figure 1: Preparation for concreting of reinforced concrete slab, pipes of stationary pump The Method statement for the carpentry work included a list of resources for the work, the number of suitably qualified staff, and the organization chart, the process of setting formworks for certain positions, a detailed schedule, quality control and applied safety-at-work measures. The Method statement for reinforcement works included the number of reinforcement preparation plants, the number of workers with data on their qualifications, the organizational chart, the transport of materials, the time schedule of production and the accomplishment of works, the method of installing, quality control and applied safety-at-work measures. It was necessary to define the technology of concrete works in detail in order to prevent possible problems during concreting. Description of the method included the special procedures of production, delivery to the site and placing of concrete. Due to large quantities of concrete that had to be placed the Method statement defined special control procedures: - during the production of concrete, - of concrete transported to the site, - of concrete on site of incorporation and - of curing of incorporated concrete. A more detailed description of the placing of concrete was needed because of the size of the building (the basis around 10,112.5 m2), and extremely high summer temperatures. In case of extreme situations specific procedures and alternative solutions were defined. Figure 1 shows the means for transporting concrete to the place of incorporation into the structure, while Figure 2 shows the progress of works on the concrete block of the structure of business parts of ACC. According to the positions that are concreted, special method statements were defined for the foundations, the side walls, the walls, the cores, the columns and the floor slabs. The complex geometry of the building, floor heights, the overall height of the building and the thickness of the floor slabs demanded a preparation of a separate method statement for the slabs scaffold. This method Management Journal for Theory and Practice Management 2012/63 statement included the static calculation of supports for the above-ground floor slabs. Due to a large number of supports that were needed on the building, in order to prevent disasters due to damage of supports (geometric and material nonlinearities), and in order to receive horizontal forces arising during the concreting, the supports were linked by brace of tubular scaffolding. This way of linking supports was very effective. 4. Quality control Quality control during the construction works should be organized and implemented in levels, with defined responsibilities and obligations of each participant. Organization of quality control is proposed by the Contractor, by submitting the Quality Control Plan for each working position individually. After receiving the approval from the Supervisor, the Contractor implements the plan. The Quality Control Plan includes measures and procedures for: - review and audit of Quality Control Plan, - purchase and control of materials and equipment, - control of transport and storage of materials and equipment, - control of documents, - inspection and certification, - control of performance, - implementation of regulations and standards, - communication and correspondence, - problems of non-compliance (in case of unsatisfactory quality), - solving the problem of non-compliance, - control of the Subcontractors, - approval for procedures and measures. Quality control is implemented through internal and external quality controls. Internal quality control is conducted by the Contractor with the inclusion of the control procedure of Subcontractors. The Contractor appoints a person, the quality manager, responsible for performing the Quality Control Plan in an efficient and appropriate manner. External control was conducted by the Supervisor. The Supervisor gives the approvals to the proposed Method statements and Quality Control Plan. Figure 2: Works in progress on concrete blocks on the business part of ACC Management Journal for Theory and Practice Management 2012/63 Subcontractors were involved in the works on the foundation slab. The Subcontractors and the Contractor appointed persons to carry out internal quality control. During the external quality control of performed works the presence of the responsible person of the Contractor was required. The following procedures and types of controls were used during the quality control of the foundation slab of ACC: 1) Preparation for works on foundations: Inspection of the foundation base is done by surveying methods of observation and measurement. Internal control includes daily checks by the Subcontractors and the occasional inspection by the Contractor. This position is a hold point for the Subcontractor and it requires a written permission by the Contractor to continue works on the next position. External control is occasional, associated with control of the accompanying documentation and control of compression module of the substrate; 2) Blinding concrete d=8cm, Grade MB15: The inspection includes the control of surfaces, dimensions and elevations, as well as the quality control of blinding concrete, where the methods of monitoring, surveying and taking of concrete samples are applied in accordance with the Concrete Design. Internal control includes daily checks by the Subcontractors and periodical control by the Contractor. External control is occasional and involves controlling of the flatness, thickness and quality of blinding concrete number of taken concrete samples; 3) Preparation of Bentofix waterproofing: The control includes control of materials, positions and overlaps according to the detailed Method statement for this type of material where the methods of observation and measurement are defined. Internal control includes daily checks by the Subcontractors and periodical control by the Contractor. External control is occasional; 4) Acceptance of Bentofix waterproofing: Acceptance of waterproofing is done according to the detailed Method statement for this type of material where the methods of observation and measurement are defined. This is a hold point for the Subcontractor, because the Contractor needs to perform a detailed inspection before the next position of works can start. By signing the check list the Contractor confirms that he has performed the control of this position after which the external inspection will be carried out by the Supervisor, who also, by signing or commenting the list of fulfilment of conditions, confirms that he has performed the inspection; 5) Blinding concrete d=8cm, Grade MB15 protection layer of waterproofing: The control includes the control of the surface, dimensions and elevations, as well as the quality control of blinding concrete, where the methods of monitoring, surveying and taking concrete samples are defined in accordance with the Concrete Design. Internal control includes daily checks by Subcontractors and a periodical control by the Contractor. External control is occasional and involves controlling of the flatness, thickness and quality of blinding concrete number of taken concrete samples; 6) Installation of formwork and openings: The control includes quality control of formwork, dimensions and positions where the methods of monitoring, measurement and surveying are defined in the detailed method statement. Acceptable criteria for approving are given in the Project documentation. Internal control includes daily checks by the Subcontractors and a periodical control by the Contractor. External control is occasional and involves controlling of dimensions, positions and quality of formwork; 7) Placing of the lower reinforcement zone: The control includes quality control of reinforcement, dimensions and positions where the methods of observation and measurement are defined in the Project documentation. Acceptable criteria for approving are given in the Project documentation - drawings of reinforcement. Internal control includes daily checks by the Subcontractors and periodical control by the Contractor. External control is occasional and involves controlling of dimensions, positions and quality of reinforcement - visual control and control of attest documents. The control of reinforcement quality was also performed using the samples taken; 8) Mounting of anchors for the columns and walls: The control includes quality control of anchors, dimensions and positions where the methods of monitoring and surveying are defined in the Project documentation. Acceptable criteria for approving are given in the Project documentation - drawings of reinforcement. includes daily checks by the Internal control Management Journal for Theory and Practice Management 2012/63 Subcontractors and a periodical control by the Contractor. External control is occasional and involves controlling of the dimensions, positions and quality of anchors - visual control and control of attest documents; 9) Placing of the upper reinforcement zone: The control includes quality control of reinforcement, dimensions and positions where the methods of observation and measurement are defined in the Project documentation. Acceptable criteria for approving are given in the Project documentation - drawings of reinforcement. Internal control includes daily checks by the Subcontractors and a periodical control by the Contractor. External control is occasional and involves controlling of dimensions, positions and quality of reinforcement - visual control and control of attest documents. The control of reinforcement quality was also performed using the samples taken; 10) Final positioning and setup, preparation for concreting: The control includes controlling of the position, stability and cleanliness of reinforcement and control of the equipment for concreting where the methods of observation and measurement are defined in the Project documentation, including surveying. Acceptable criteria for control are given in the Project documentation and Method statement. Internal control includes inspection by the Subcontractors and then inspection by the Contractor and then filling up the check list (list of fulfilment of requirements) for concreting and submission to the Supervisor. External control by the Supervisor is occasional; 11) Acceptance of the concrete block for concreting: The control involves verifying the correctness of executed works where the methods of observation and measurement are defined in the Project documentation. The criteria for acceptance are given in the Project documentation. This is a hold point for the Subcontractor because the Contractor needs to perform a detailed inspection before the next work position can start. The Contractor, by signing the check list, confirms that he has performed the inspection of this position after which the external inspection is carried out by the Supervisor, who also verifies fulfilment of conditions for concreting by signing or commenting the list. If the Supervisor does not agree or does not sign the check list, the Contractor is obliged to remedy the given objections and then repeat the control procedure; 12) Concreting of concrete block for reinforced concrete foundation slab d=90cm, Grade MB30: The control includes the quality control of concrete, dimensions and elevations, as well as the control of means for work. During the control, methods of monitoring and taking of concrete samples are applied in accordance with the Concrete Design. The Subcontractor performs the sampling of concrete with the Contractors inspection. External control includes confirmation by the Supervisor of the above control procedures, especially for the quality of concrete and the number of taken concrete samples; 13) Curing of concrete: The control includes the control of continuity of curing during the period set by the Concrete Design, all in accordance with the detailed Method statement for concrete works. Internal control by the Contractor is occasional. External control by the Supervisor is also occasional. An integral part of Quality Control Plan of the foundation slab is a check list or a list of fulfilment of requirements for concreting the concrete block of the reinforced-concrete foundation slab. This list contains the work positions that are defined in the detailed Method statement which must be checked as stated above, and verified by the responsible persons of the Subcontractor, then by the responsible person of the Contractor, and in the end, by the Supervisor. Verifying the check list, the Supervisor confirms that he has performed the control in accordance with the Control Plan. The list contains the space for comments the Contractor and Supervisor may have. Management Journal for Theory and Practice Management 2012/63 Figure 3: Structure of the businessunits of ACC During the execution of concrete works on the ACC facility a need for defining additional detailed inspection procedures for vertical concrete structural elements appeared. This inspection procedure was created as a consequence of inadequate control of the position of anchors for reinforced-concrete columns and walls by the Contractor. Due to this additional control successful measures for the remedy of the positions of anchors have been applied. The procedure includes the following control steps: 1) The Contractor is required to control the position of anchors for vertical elements immediately after the completed concreting of reinforced-concrete slab. Surveying records are submitted to the Supervisor on the same day when the concreting took place (regardless of whet her the position of anchors is in compliance with the design, or there are major or minor deviations). The recording includes: (a) Name of the element or part of the structure, floors, etc..; (b) Document Number and date of issue; (c) Name and signature of authorized person. Depending on the case, the Supervisor independently and / or in collaboration with the Designer of the structure, decides on the measures for the recovery of the established deviations of anchor positions; 2) When the anchors are properly placed, the surveyors mark the position of the vertical elements; 3) Before inviting the Supervisor, the Contractor shall check the mounted reinforcement and other elements which should be installed. The responsible person of the Contractor controls whether this element is placed according to the designed documentation; 4) When the mounted reinforcement is properly placed, including the possible installation of structural stirrups and other devices that are designed to maintain the reinforcement in the designed position before and during the concreting, the responsible person shall notify the Supervisor that the concrete element is ready for control and approval for concreting; 5) The Contractor submits the check list of elements to the Supervisor with signatures of the responsible person of the Contractor. Lists with invitation for control of elements and approval for concreting shall be submitted daily to the Supervisor from 9:00 am to 10:00 am and from 17:00 pm to 18:00 pm. The Supervisor Management Journal for Theory and Practice Management 2012/63 performs the control in a short time, but not later than 24 hours after which he returns the lists to the Contractor; 6) On determining that the reinforcement and other elements are mounted correctly, the closure of formworks begins, all in accordance with the design and details, with prior application of special material for connection between old and new concrete; 7) The Contractor controls the set formwork and checks whether its position is structurally and geodetically correct (verticality and its disposition). After this check the responsible person of the Contractor signs the appropriate positions in the check list; 8) If all previous conditions are satisfied, the check list is submitted to the Supervisor at least 6 hours before the scheduled start of concreting in order to allow him time for his control of formwork and scaffolding. By signing of the check list the Supervisor approves the concreting; 9) If necessary, the Contractor shall, during the concreting, perform the geodetic survey and control of the formwork; 10) Formwork is removed not earlier than 48 hours after the completion of concreting of a vertical element, all in accordance with a detailed description of the position given in the Method statement; 11) On dismantling of formwork, the Contractor controls the verticality of the concrete element. In case of deviations, he immediately notifies the Supervisor in writing. After consultation with all parties (Supervisor, Designer, Contractor) the Supervisor makes a decision on taking appropriate measures to remedy identified deficiencies; 12) Before mounting of the formwork for plates above the vertical elements, an approval from the Supervisor is needed. By applying the above control procedures the quality of these works on the ACC was raised to a higher level. 5. Safety-at-work measures Important aspects of organization of works, which are associated with the preservation of life and health of workers at the construction site, are safety at work and enforcement of safety-at-work measures. Safety at work in civil engineering is very complex. One of the reasons is that the work is performed outdoors where, very often, workers meet with most unfavourable working conditions, such as: extremely low or high temperatures, rain or snow, noise, vibrations, dust, working at high altitudes or at great depths. etc. Also there is a constant risk of falls of workers from a height or falling of objects onto the workers. At the construction site the worker is constantly exposed to all these unfavourable working conditions, therefore, during the execution of construction works it is necessary to implement safety measures which ensure the safety of workers and others involved in the construction work process 7, 8. In terms of safety at work, construction works are legally regulated by a number of laws and bylaws. The organization of work on the construction site should be such that it maximally reduces the possibility of injury of workers. The organizational documents of the Contractor have to envisage all the prescribed and in practice identified safety measures which should be implemented so that the workers would perform their work in a safe manner. The contract between the Investor and the Contractor regulates all the necessary safety measures in terms of their organization and implementation. Also, the contract regulates the mutual rights, obligations and responsibilities of the parties connected to safety at work. The basic requirements of safety at work on the construction site are: a) working environment is designed, built and maintained with the application of safety measures against threats to life and health of workers, b) working conditions are adjusted to the physical and mental abilities of workers, c) method and organization of work are defined so that a worker works in an optimal position, d) electrical and other installations must be installed and maintained in accordance with technical regulations, Management Journal for Theory and Practice Management 2012/63 e) in the working areas with chemical, physical and biological hazards all the parameters should be lower than the allowed limits, f) machinery, tools, equipment and other technical means of work should be designed, installed and used so that they do not endanger the safety of workers, g) personal protective equipment should be used as an addition to other appropriate protective measures. The necessary measures of safety at work in construction industry are part of the Elaborate on the organization of the construction site. Having in mind that the injuries in the construction industry are usually a consequence of not applying the necessary preventive safety measures by the Contractor, as well as workers disobedience during construction works, it is necessary to constantly insist on the implementation of the prescribed safety measures. A delay in the implementation of safety measures cannot be allowed, and any individual irresponsibility must be sanctioned. It is necessary to include a safety expert in the supervision team. During the construction of the ACC, as a result of non-compliance with the prescribed safety measures, there were a small number of minor injuries of workers employed at the construction site. There were no serious bodily injuries or life-threatening injuries. Experts for safety at work and other employees on the construction of the ACC had a significant role in the implementation of the prescribed health and safety-at- work measures which in turn resulted in the reduced number and severity of injuries and health problems at work. Conslusion With a good organization and an adequate choice of working methods, together with constant quality control of the execution of works, the required quality within the planned period of time is achieved. Using special procedures for the selection of materials, changes in the design and the contracted Bill of quantities result in a better control of the money flow and allow staying within the budget while meeting the designed quality. The performed works on the structure of the residential and business building Atlas Capital Center is an example of good organization. During the period of 18 months 46,441m3 of concrete and 6,331 tonnes of reinforcement were incorporated into the structure without any serious health and safety problems. The construction contract was signed according to the FIDIC Red Book. The area of the basis, geometry and dimensions of the building required not only preparation of a general Method statement for the construction of the structure, but also the preparation of detailed Method statements for all work positions. According to the Quality Control Plan an internal control was performed by the responsible persons of both the Subcontractor and the Contractor, while the external control was performed by the Supervisor. Quality control was verified by the check lists containing positions defined in detailed Method statements. The control of works organized in this way resulted in the achieved quality of the structure of the ACC which was completely in line with regulations and the project documentation. REFERENCES [1] Fabris, N., Kilibarda, B i ostali: Strane direktne investicije kao pokretač privrednog razvoja Crne Gore (radna studija br. 16.), Centralna banka Crne Gore, Podgorica, 2008. [2] Klepac J. Organizacija građenja, Sveučilište u Zagrebu, Građevinski fakultet Zagreb, 1984. [3] Ćirović G., Mitrović S. Tehnologija građenja , Beograd, 2008. [4] Muravljov M. Osnovi teorije i tehnologije betona, Građevinska knjiga ad, Beograd, 2008. [5] Rakočević M.,Žižić T.,Burić V. i. Mrdak I. Tehnologija izvođenja konstrukcije podzemnog dijela kompleksa Atlas Capital Center, , DGKS 13.Kongres, septembar 2010. [6] Rakočević M.,Žižić T.,Burić V. i. Mrdak I. Tehnologija izvođenja konstrukcije nadzemnog dijela kompleksa Atlas Capital Center, DGKS 13.Kongres, Zlatibor, septembar 2010. [7] Prebiračević S. i Rakočević M. Mjere zaštite na adu u građevinarstvu, GNP 2010, Žabljak, februar 2010. [8] Prebiračević S., Rakočević M. i Žižić T. Primjena mjera zaštite na radu pri izgradnji stambeno-poslovnog objekta ACC u Podgorici, GNP 2010, Žabljak, februar 2010. Receieved: 03. 2012. Accepted: 06. 2012. Management Journal for Theory and Practice Management 2012/63 About the Author Marina Rakočević University of Montenegro, Faculty of Civil Engineering, Podgorica e-mail: marinara@ac.me Marina Rakočević, Phd, Assistant Professor on the Faculty of Civil Engineering in Podgorica for the Theory of structure. Areas of interest for scientific research and professional work are real behavior of plates made from contemporary composite materials and quality control of constructions. She participated in the preparation of three scientific research projects. She is the author of 40 scientific research papers and articles. In practice, she participated as supervisor during the construction of significant projects in Montenegro, production of expert reports, revision of technical documentation, and technical inspections of buildings, etc.. From year 2010 she is the Vice Dean for education and the Chief of Laboratory for materials and constructions on the Faculty of Civil Engineering in Podgorica. Miloš Knežević University of Montenegro, Faculty of Civil Engineering, Podgorica e-mail:milosknezevic@hotmail.com Miloš Knežević, PhD, Associate professor at the Faculty of Civil Engineering in Podgorica, lecturer on Project Management at specialization postgraduate studies. He also lectures at the Project Management course on postgraduate studies at the Faculty of Tourism and Hotel Management in Kotor and the Faculty of Economics in Podgorica. He participated in a number of scientific research projects, published over 70 scientific papers in national and international journals. He participated in the preparation of over 120 design solutions, expert reports and technical inspections of facilities and buildings. From year 2010 he is the Dean of the Faculty of Civil Engineering in Podgorica and the Chief of the Applied Study Program in Construction Management. Snežana Rutešić University of Montenegro, Faculty of Civil Engineering, Podgorica e-mail: snezanar@ac.me Dr Snežana Rutešić , a Ph. D. CE , an assisstant professor at the Faculty of Civil Engineering, University of Montenegro in Podgorica, in the field of building technology, organization and project management. The area of her particular scientific interest is quality management and information systems, which were the topics her masters theses and doctoral dissertations. She has published about thirty papers in this area published in monographs, international and domestic journals and many conferences. From 2010 she is vice dean for finance and a member of the Council of Technical and Natural Sciences, University of Montenegro. Nenad Ivanišević University of Belgrade, Faculty of Civil Engineering, Belgrade e-mail: nesa@grf.bg.ac.rs Nenad Ivanišević, PhD, MSc Civ.Eng, Lawyer, Assistant Professor at the Department of Construction Management, Faculty of Civil Engineering University of Belgrade. Areas of his special interest for scientific research and professional work are construction contracting, international tendering procedures and FIDIC conditions of contract. He is the author of a great number of scientific research papers and articles. He participated in the preparation and execution of a significant number of investment projects in Serbia and abroad. He is the Deputy Chief of the Institute of Construction Management at the Faculty of Civil Engineering in Belgrade. Boško Stevanović University of Belgrade, Faculty of Civil Engineering, Belgrade e-mail: bole@imk.grf.bg.ac.rs Boško Stevanović, Phd, is an Associate Professor at the Faculty of Civil Engineering, University of Belgrade, for the Timber and masonry structures. He has dozens of scientific papers published in the proceedings of conferences held in the country and abroad. Stevanović is the President of the Commission on standards and related documents in the field of timber and masonry, KS U250-5, 6, of the Institute for Standardization of Serbia. Since November 2006 he has been the associate dean of finance of Faculty of Civil Engineering in Belgrade. Management Journal for Theory and Practice Management 2012/63 Marko Vulić1, Marko Ranković2, Vojkan Vasković3 1Scholar of the Ministry of Education and Science, Faculty of Organizational Sciences, Belgrade 2EuroPlanet d.o.o, Belgrade 3Belgrade Business School Identity Management in Modern Business - an Example of Cloud Systems UDC: 004.42:004.738.52 ; 004.738.5:005.41 DOI: 10.7595/management.fon.2012.0008 The main subject of this paper is Identity management (IDM) in modern business. IDM is one of the biggest challenges on the Internet today, mainly because of the increasing number of services and possible abuse. Digitization of information has greatly facilitated the collection, storing and sharing large amounts of data, but has also contributed to the development of privacy-related risks in the management. IDM concept, model, relationship and system architecture are analyzed in this paper. The paper presents the models most important elements, shows some of the most important IDM standards and Cloud patterns in the system. Keywords: Identity management, IdM model, IdM standards, data security, Cloud patterns 1. Introduction Identity is defined as a set of personal characteristics that make individual a member of the group. Knowing the identity of the human perspective is viewed through a sense of belonging and a sense of rejection. [1] IDM involves technology, processes, functions and capabilities to manage information on identity, preserving the identity of the entity as well as complexity and security improvements of business applications. IDM is an area that deals with identifying individuals in the system and controls their access to resources within that system, associating user rights and restrictions with the established identity. [2] The two main components of IDM are: managing the identity and managing by identity. Management of the identity is the process of issuing and using digital identities and credentials (e.g. username and password) for authentication. Management by identity combines the identity authenticated users with their authorization, in order to grant access to resources. [3] 2. Development and identity management The identity and the digital identity can be composed of sets of attributes. Sets of attributes are subsets of partial identities at different ages. Life cycle stages of partial identity are [4]: Establishment of partial identity - identity creation or assignment of any person (individual). Development of partial identities - use of partial identities by both owner and the others. Completion of partial identity - erasing or partial suspension of identity. All phases described above are relevant for the formation of partial identity. In most European countries, soon after the birth of a child, unique identifiers are created for the newborn child. One of such identifiers is a birth certificate containing the name, sex, place of birth, and information about its biological parents. This type of registration cannot be prevented by anyone, not even by the parents, because it is in this way that the child officially becomes a citizen of the State. The next official document is the medical record. It contains the basic information about the child (name, sex, date of birth), records the unique identification number under which the child is registered as a citizen, and Management Journal for Theory and Practice Management 2012/63 medical data (height, weight, data on how mother gave birth to the child, etc.). As the child grows up over the years, the medical record contains more data. When the child enters kindergarten, the card with personal data of the child is created, as well as with information on the parents. During the childs stay in care, a partial identity of the child is formed, with which it is eventually identified, and starts to live it. In order to do business with some companies and businesses, parents can assign the rights of their children or allow them to participate in filming commercials. These materials are rarely deleted, hence digital identity only increases and rarely or never decreases. Some of the partial identity can be said not to ever stop even after the death of the individual, because it can be transferred to another person (e.g. social security number). [4] [5] Figure 1 : Partial identities [4] 3. Formal model of the identity management A formal model of the identity management consists of the following key concepts [6]: Attribute - An attribute is a feature in connection with an entity (name, date of birth, the generic code, fingerprint, etc.). Identity - an abstract representation of the entity. Partial identity - a subset of the attributes associated with entities (name, age, credit card number) that an individual uses to interact with other participants. Identifier - identifies different persons, places or things. There are two types of identifiers: (1) personal identifier - permanent identifiers associated with individual human attributes and the attributes that are difficult to change or that do not change at all (e.g. date of birth, genetic code); (2) alias - an identifier associated with the attribute or set of transactions, but without permanent or personal identifiers. Context the environment of the entity. Figure 2: The Relationship between IDM architecture and management [7] Management Journal for Theory and Practice Management 2012/63 4. Sensitivity of the identity The perception of the data, i.e., acceptance of any information as sensitive or not sensitive is subjective. The sensitivity of the data is not viewed only from the perspective of privacy, but also through the data security. The European Union has defined a special category of data for which member states are not permitted to process data, except in special circumstances, such as: personal data revealing racial or ethnic origin, political affiliation, religious affiliation, information on health or sex life. 4.1 The sensitivity based on privacy The attributes that are static over time can be sensitive if they are discovered over and over again in different situations, because this way allows for connecting the related data. The detection of static attribute allows the viewer to connect these situations and gather information that can be used to identify individuals whose attributes are controlled. There are attributes that the individual cannot determine by himself (e.g. own name), and they can be classified as the initial attributes. They are an inherited attribute values , such as the DNA from the parents or the family name. Partial identity of the child is determined in advance by the parents, because it has not yet been able to just make decisions. Unsolicited change of attribute values could allow individuals to control their identity, but this is not always possible, as it was shown in the example of static attributes. It means that individual autonomy may be limited to the value of the attribute. Some attributes cannot be detected or changed, if the additional data related to the particular attribute is not discovered. Sometimes it is difficult to put aside the additional information, and it happens that individuals are not able to detect this additional information if they are asked to do so. An individual can be affected by the value of an attribute or an attribute itself, if it is able to ensure him the position within the group. An individual can remain anonymous as before, or seen in a context in which case his or her privacy may be threatened. For example, the establishment of direct contact by phone or e-mail can be interpreted as a threat to privacy. Even if a direct contact with the individual is not established, negative effects can be achieved through the discrimination. When it comes to discrimination, only the direct negative effects on individuals are generally taken under consideration, however, these effects can also have an impact on others. If some members of the community get to know some information that is not available to others, they are thus in a better position than others and are able to use this info to discriminate others. [4] 5. Personal data privacy management mechanisms The best way to protect personal information is to disclose it and make it publically available to a minimum possible amount. Mechanisms that can prevent the misuse of personal data are [4]: managing partial identities, data minimization, executable rules for data processing and operational transparency. Managing identities and partial protection against a misuse of the same processes are not trivial. Personal information about an individual available on personal computers may be vulnerable if the computers are not used properly, or if the the safety of the system through a number of available patches is not ensured. Minimization of data does not only include the reduction of the available information, but also reduces the possibility of identifying and connecting to the available data. Communication can be encrypted and redirected to different third-party proxy servers to guarantee anonymity, unless the user does not reveal any additional information. If personal data leave the environment controlled by the user, the user shall be informed about what will continue to happen with these data. Legislation regulated the ability to cancel the approval of the processing of personal data. The problem can occur if the copies of the data are transferred to other parties and then a total recall is no longer possible. Management Journal for Theory and Practice Management 2012/63 Transparency is a prerequisite for any kind of control by the user. The information about the parties in the communication process, their reputation, reliability or responsibilities have to be visible, and represent a significant factor before the establishment of a communication relationship. 6. The identity management standards When defining the requirements in the implementation phase of IDM systems it is necessary that the evaluation of standards be performed. There are different standards for Web services (SOAP, USDL, UDDI), security (SAML, WSS), the biometrics (BioAPI, CBEFF), etc. A number of these standards are described in this paper. The SAML (Security Access Markup Language) is a standard aimed at implementing solutions that are based on the authentication and authorization in different systems using the XML code. The SAML uses Identity Provider (IdP) and Service Provider (SP) concepts. The SP concept refers to a third party that stores information about or on behalf of another entity. [8] [9] The Standard SPML (Service Provisioning Markup Language) is designed to manage the process of application of user accounts within the various systems. The XACML (eXtensible Access Control Markup Language) is an XML specification for the transmission and data processing systems used to access information via the Internet. The WS-Security (Web Security Service) aims to provide support, integration and standardization of different security models, mechanisms and technologies that will enable interoperability of different systems. The XCBF (eXtensible Common Biometric Format) is a standard method of transmission of biometric identification data, such as eye scan or fingerprint. 7. Identity management in cloud The development of the cloud systems concept viewed from the perspective of different methodological approaches, technology and business (SaaS, cluster systems, high performance), allows for the Cloud IDM to be viewed as a comprehensive approach to solving all the problems in this area, and beyond. Cloud computing is defined as a distributed computer system, the area within which clients have a highly scalable information and communication capacities. [10] The concept of cloud computing is based on virtualization technology, which replaces the physical computing resources. [11] IDM in the cloud system has to manage: control points, closed dynamic systems, virtual machines or identity services. Cloud implementation is a dynamic system with servers that run or are canceled, IP addresses are dynamically assigned and change the services that are started, shut down or restarted. When the device or service shuts down, IDM receives information so that it cancells the access to instances. IDM will keep the details of acces to instances stored until the moment when it becomes active again, and then activate the authentication mechanism. Until the access is reactivated, the access details must be stored and kept in an appropriate and clearly defined way. [8] [12] Cloud systems require a change of approach, compared to the classic IDM, especially in the part related to enabling or cancellation of access, synchronization, granting privileges, identity lifecycle management, etc. So far the only way to ensure the security of sensitive data in the cloud is encryption. A most common solution for data encryption is the PGP (Pretty Good Privacy) encryption product, which offers encryption at any place where data can reside. The advantage of the PGP encryption is centralized product management. This approach enables centralized care of the encryption keys. [13] The cloud IDM systems distinguish three patterns [14]: trusted IDM pattern, external pattern and interoperable IDM pattern. Trusted IDM pattern is designed for small or private Cloud systems that require a high level of safety. The level of scalability is extremely low. The main feature of this concept is that the authentication is always implemented in the firewall. Authentication details are forwarded to the IDM components, which encrypts the information and continue through the safe channel of communication, forwards the information to the entity Management Journal for Theory and Practice Management 2012/63 that will implement authentication. implementation and integration of this pattern are fast and efficient. IDM is independent of authentication mechanism, hence the After successful user authentication, by any mechanism of the authentication cloud system, the other servers, participants in the system, trust the authenticated user. Attributes of users can be shared through concepts such as SAML, while the authorization itself may be implemented using XACML-a. An example is shown in Figure 3. Figure 3: Trusted IDM pattern [14] External IDM pattern is similar to the previous one, except that the authentication details are directly forwarded to the entity that will implement the authentication. Authentication details can be obtained using a different browser, a protected channel provided by SSL (Secure Sockets Layer). The External pattern is intended for public cloud systems. IDM is particularly aimed at resolving issues and initiating the domain authentication process by the entity that will implement authentication. The architectural solution is adopted by Ping Identity, where the domain issue is resolved by reference to the appropriate table of valid users, which is always updated. An example is shown in Figure 4. Figure 4: External IDM [14] Interoperable IDM pattern is used during the implementation of the Cloud2Cloud communication, using OpenID and OAuth. OpenID is an open and decentralized standard for user authentication and access control, which allows users to access various services or servers with the same digital identity. OAuth is an open protocol that allows the user to assign privileges to another user access to the site service provider, without sharing authentication details. This is extremely useful for e-business, where different service providers offer their products / services at one place. Management Journal for Theory and Practice Management 2012/63 Comparative review of three IDM Cloud patterns is shown in Table 1: Figure 5: Interoperable IDM [14] Table 1. Comparative review of the IDM patterns [14] Trusted IDM pattern External IDM pattern Interoperable IDM pattern Security Very secure Submitted to IDP network Interoperability Interoperable Type of cloud Private cloud Speed of implementation Very fast Scalability Example Not scalable easily Google App Engine Interoperable Public cloud Fast Not scalable easily Ping identity Depends on authentication mechanism Interoperable Public cloud with multiple technologies Speed depends on the number of claims Scalable Proposed design Conslusion This paper describes the basics of IDM systems, from the general terms, to the rules and standards for IDM. The goal of the paper is to present the concept of digital identity, as the basis for implementing a wide range of services in the areas of business on the Internet. As a concept, IDM has been present for a long time, but the rapid development of electronic commerce expanded the possibilities of application of the concept, hence the research in this area are of significant value for both the area of e-business, and for the presence on the Internet in general. The Internet environment and a host of services that are available to users have led to an increased need to pay the digital identity of the entity major attention. Digital identity should be managed in a strategically planned, business-justifiable and controlled manner. IDM entails a number of security issues. At the time of creating a digital identity, or use of specific solutions for IDM, opportunities arise for performing various illegal and malicious activities, primarily in the form of theft or unauthorized taking of digital identities. The main task of IDM is to ensure that the real identity is used in the right context at the right time. The use of the cloud system in making the IDM concept should meet the requirements set by the cloud system, as well as fulfill the requirements for future system enhancements. The use of this approach will make the IDM concept simple, fast and efficient to use in relation to large systems, as the activities IDM system will be implemented in the cloud. The description of the IDM gives the advantages and disadvantages of this concept, while the description of the elements of IDM and methodology for implementing such a system outlines the concept, which should serve as basis for further research in this area. Management Journal for Theory and Practice Management 2012/63 REFERENCES [1] Windley, P.J. Digital Identity, OReilly Media, Inc., Ch2, 2005. [2] Harrop, M. Identity Management, The Cottingham Group, ETSI Security Workshop, 2009. [3] Identity Management, The Government of the Hong Kong Special Administrative Region, 2008. [4] Hansena, M., Pfitzmannb, A. and Steinbrecherb, S. Identity management throughout ones whole life, Information security technical report 13, pp. 83-94, 2008. [5] Chawdhry, P. and Vakalis, I. Use of ePassport for Identity Management in Network-Based Citizen-Life Processes, Editor(s): Bezzi, M., Duquenoy, P., FischerHubner, S., Hansen, M. and Zhang, G., Privacy and Identity Management for Life, Book Series: IFIP Advances in Information and Communication Technology, Vol. 320, pp. 122-133, 2010. [6] Glasser, U. and Vajihollahi, M. Identity Management Architecture, Simon Fraser University, Canada, 2008. [7] Jin, Z.P., Xu, J., Xu, M. and Zheng, N. An Attribute-Oriented Model for Identity Management, International Conference on e-Education, e-Business, e-Management and e-Learning, 2010. [8] Celesti, A., Tusa, F., Villari, M. and Puliafito, A. Security and cloud computing: Intercloud identity management infrastructure, 19th IEEE International Workshop on Enabling Technologies: Infrastructure for Collaborative Enterprises, WET ICE 2010, Larissa, pp. 263-265, 28-30 June 2010. [9] Angin, P., Bhargava, B., Ranchal, R., Singh, N., Linderman, M., Ben Othmane, L. and Lilien, L. An Entity-centric Approach for Privacy and Identity Management in Cloud Computing, 29th IEEE Symposium on Reliable Distributed Systems 2010, New Delhi, pp. 177-183, 31Oct-3Nov 2010. [10] Srinivasa, R., Nageswara, R. and Kusuma, K. Cloud Computing: An overview, Journal of Theoretical and applied Information Technology, Vol. 9, No. 1, pp. 71-76, 2009. [11] di Costanzo, A., de Assuncao, M.Di. and Buyya, R. Harnessing Cloud Technologies for a Virtualized Distributed Computing Infrastructure, IEEE Internet Computing, IEEE Computer Society, pp. 24-33, 2009. [12] Sanchez, R., Almenares, F., Arias, P., Diaz-Sanchez, D. and Marin, A. Enhancing Privacy and Dynamic Federation in IdM for Consumer Cloud Computing, IEEE Transactions On Consumer Electronics, Vol. 58, Issue 1, pp. 95-103, 2012. [13] Vučinić, V. Sigurnost u oblacima, Internet ogledalo, No. 126-127, pp. 40-43, 2011. [14] Gopalakrishnan, A. Cloud Computing Identity Management, SETLabs Briefings, Vol. 7, No. 7, pp. 45 53, 2009. Receieved: February 2012. Accepted: May 2012. Management Journal for Theory and Practice Management 2012/63 About the Author Marko Vulić Scholar of the Ministry of Education and Science, Faculty of Organizational Sciences, Belgrade e-mail: marko@elab.rs Marko Vulić was born in Belgrade, in 1985. He completed his graduate and master studies at the Faculty of Organizational Sciences in Belgrade. Currently, he is a second-year student at the doctoral studies course at the Faculty of Organizational sciences, and a scholar and member of the Ministry of Science and Education of the Republic of Serbia project team. His scientific interest areas are as follows: electronic business, mobile business, the Internet marketing, e-education, e-banking, CRM. Marko Ranković EuroPlanet d.o.o e-mail: mrankovic@euronetworldwide.com The authors professional interest areas are in project management in the fields of financial services, scientific and research work in the area of electronic financial transaction processing, including methods and techniques of processing, processor organizational structure, the architecture of the transaction processing platform, models and techniques of card payment system protection. Marko Ranković is currently employed as a Project Manager in the EuroPlanet Company. Vojkan Vasković was born in Kragujevac, in 1951. He completed his graduate and postgraduate (master) studies at the Faculty of Organizational Sciences, Belgrade, where he also took his PhD degree. At present he teaches at the Belgrade Business School. His professional interest areas are the following: electronic business, e-banking, Internet technologies, mobile technologies, e-Government. Vojkan Vasković Belgrade Business School e-mail: vaskovic@bvcom.net Management Journal for Theory and Practice Management 2012/63 Branislav Jevtić Faculty of Sport and Physical Education and the Olympic Committee of Serbia Managing Programmes for Participation in a Mega Sporting Event UDC: 796.032.2:005.51 DOI: 10.7595/management.fon.2012.0012 The Olympic Games (OG) are a special and a mega sporting event held every fourth year and open for all qualified athletes (teams and individuals) of the national Olympic committees (NOC). The participation of the worlds best athletes and the context of the events by which the Olympic values are promoted are two key factors that make the OG the primary multi-sporting event. In preparation for the participation in the Games, the Olympic Committee of Serbia (OCS) realizes the Olympic programmes that take place in phases and periods of the life cycle of the Olympics and through which sports and business function of the OCS itself, but also helps improve the whole system of sport of Serbia. The Olympic programmes, as a subject of this paper, contain innovative strategy of the OCS by which all those who possess competencies essential for participation in the OG (sports, organizational, managing) are included. The programmes are partially an innovation (result, team, participation, the competent sports organization), a process (the application of new technologies), and affirmation of the existing and the creation of new, Olympic, values. Keywords: Olympics, management, management of the Olympic program 1. The Olympic Games a mega sporting event Management in a sporting event is paid increasing attention within the organization of special events. While in the domain of management there is a number of ambiguities in the description and definition of a special event (in terms of size, importance, regular maintenance, specific, mega, large and small sporting events, casual, ad-hoc) [26], the theory of sport observes the OG as the primary multi sporting event. In the area of management, the special event of the Games is a set of projected actions and activities designed for a projected profile and a number of participants to be gathered, at a given time and place, to achieve the set goals [32]. In the theory of sport, the Games are an event that integrates a number of sports, disciplines, the competition format. The Summer Games last for 16 days, bringing together the best athletes in the world who, consistent with the values of the Olympic Movement (friendship, respect, fair play, excellence...) compete in 28 sports and 302 events [19]. The Olympic Games are an event in which victory, unity, and togetherness are pursued. They are also a reference point in the process of change and a cultural event (including sport and commercial facets) with a clear character, popularity and the international importance [28]. The present status of the Olympics is drawn both from the ancient world and from their role in the development of modern society and civilization. The Games of modern times have been organized since 1896 as a manifest form of the Olympic Movement Olympism (1894), for which Pierre de Coubertin, its founder, says that it is the ideology, a set of ideas about the purpose of life in a community, social goals, resource allocation, and the relationship between the society and the individual [16]. Olympism stems from the principle that sport promotes the optimal development of a man and the society and its ideology is clearly expressed in the Olympic Charter, which defines the Games as the primary event based on values, ethics, and ideals [3]. Participation in the Olympics is preceded by sporting events that take place on the qualifications of athletes (individuals and teams). The so-called test competitions in which the technical approval of facilities, equipment is performed and through which the athletes and the accompanying staff, as well as the Organizing committee of the OG (OCOG) and the International Sports Federation (ISF) make their last preparations for the competition [15] also belong to the Games. Management Journal for Theory and Practice Management 2012/63 1.1. Identity and sustainability of the Games From the event of a humble beginning, the Olympic Games have turned into a world for itself. Participation in the Olympics (winter and summer) is a priority for every athlete, sports system, and society. Thus, more than 76% of respondents around the world think that participation in the Games is more than sport. The Games are more than a sports event, more than participation and victory, say 72% of respondents. The Games are a good role model for children (72% of respondents), they are endevaour, optimism, inspiration, friendship, glory of youth [20], but also the clash of the nations and the race for the medals, just as seen by the sports and political structures of almost all countries around the world [11,19]. For the International Olympic Committee (IOC), OCG, media, commercial world..., the OG are a synonym for progress, an industry of events and profits... while for athletes they are striving, vision, part of the image of which their athletic and professional world is built. The participation of athletes is a very important issue of the present and the future, which the IOC, especially after the identity crisis of the Games among the athletes (Atlanta, 1996), intensively and strategically think about. The maintenance of identity and status of the OG as a primary sports event were discussed at the Congress of IOC (2009). The documents of the Copenhagen Congres in relation to the question How to keep the Games as the primary event contain a number of conclusions that can be divided into several areas: 1. The Games and the society, a space in which a larger integration with the modern society and technological development is striven for [2]. The Games are a unique social phenomenon which connects people, cultures and countries of the world. The Olympism is the most successful movement and it builds good will and cooperation. The Games are a primary event of promoting peace in the world and the system of values of interest for all societies [10]. They are a microcosm of civilization [24]. 2. The strategy for preservation and expansion of support to the Games. This area contains measures for building network and motivation for stakeholders to participate in all the phases and periods of the Olympic cycle. 3. Managing change and innovations... This conclusion contains the assessment of risk, but also the ways of transferring and managing knowledge and experience from the previous for the following Games [23]. 4. Defining the importance of the event, and a continuous evaluation of the OG Programme quality [8]. The IOC is aware of the need to encourage the participation of the largest possible number of elite athletes of the world in the Games and the improvement of the format of the competition and the programme of the Games according to the new demands, but with respect to the core of the programme [5]. 5. The Games as a support for the digital revolution [14]. 6. Examining the market, inclusion of the affirmed methods of the business, supporting the competitive business environment [8]. 7. Cross-cultural management and innovations as a support for each following Games to be more challenging than the previous ones, and ensuring that this challenge meets the expectations of cultural differences of the participants and the consumers of the Games [31]. 8. Legacy of the Games for the host city and the Games as an investment and motivation for new candidates [30]. 9. The Games and the young. Young athletes and their sports and professional development should be preserved in focus of the Movement so that the children and the youth as consumers of sports product should participate in sports and adopt practices and accept the values of the Olympism [20]. The Olympic Games are an economic challenge and encouragement for the development of local and national sports infrastructure, urban regeneration, and sustainable development [23]. Their economic potential encourages investments, moves tourists, turns devastated and abandoned areas into urban centers and technological units [9]. Therefore, the OCOG in London is proud of the plan of social and ethical inclusion of more than 300 ethnic groups (more than 300 languages are spoken in London) as well as of programmes to reduce the deprivation that characterizes the eastern part of London [27]. The part of the strategy relating to sustainable development, which will change habits, improve waste disposal, promote biodiversity, and build facilities in accordance with high environmental and sustainability standards is of no lesser importance. A permanent sporting legacy as one of the goals of the organization of the Games contains measures to increase the number of physically active individuals. Health, pension, social, educational and sports systems are advantages of the HEPA project to encourage physical activity of the population towards health, employment, educational and recreational benefits [10]. Management Journal for Theory and Practice Management 2012/63 Upon being awarded the Games, the UK government drew up the Games Plan (2002) within which a number of services were developed to carry out the management of organizational changes of the society. In other words, the organization of the Games has become a race for urban investment that will stimulate local economic development and which is based on the grandness of legacy [4]. Two documents, and these are the application of London as a host and the Action Plan are in the process of continuous monitoring. They contain a chapter on longevity of the legacy (subsequent use and the final owners) which is, in case of London, entrusted to the newly established Institute of the Olympic legacy, which realizes its mission through business and sports functions [42]. A significant factor in the identity and sustainability of the Games is profit. The Games bring profit for the organizer in the economic, social, political, cultural, sports, environmental and technological terms. After the financial crisis and the debt which Montreal is still paying off (1976), the OG have received a new commercial dimension built on the reputation and prestige, spectators and media attention, tradition [4, 43], but also on a wide value framework. Cost and benefit analysis is used to evaluate whether the Games are financially viable. If the benefit is above the price, that means that the local community benefits from the Games (e.g. Barcelona). Besides the organizers, the benefits are calculated for the visitors, the society (environment, transport, infrastructure), but also for the NOC that participated. To the question on the strategy for sustainability of the OG, the IOC answers with continuous evaluations and assessment of the impact and importance of the Games themselves. The impacts and benefits of the Games, but also the compliance of the organization and maintenance of the Games to the ideals of Olympism are evaluated and assessed by the instrument for analyzing the global influence of the OG (OGGI) [24]. However, it must be emphasized that the Games have reached this size and importance with the support of athletes and their willingness to participate, as well as thanks to the definition of processes, organization, management, coordination, control and evaluation. A special part in the strategy to preserve and further develop the OG is given to the digital revolution and the digital world. In this sense, the best example is the Youth Olympic Games (YOG) held in Singapore (2010), which are the first sports event of the IOC after 86 years. With this project, the IOC imagined the digital world as a lever in expanding the value framework and as a support to transparency and motivation of the young for participation in sports. The mission of the YOG is more than sport. Their goal is the integration of sports and education of young athletes in the Olympic values, healthy lifestyle, good health, social responsibility. The YOG are not mini Olympics, they are sports, cultural and educational event that has its own identity, even in competition. They differ from the OG because the IOC tried to keep the young athletes away from the media, to include them into one of 75 workshops and to approach them through their world (via Twitter, Facebook, YouTube) and the CUBE IOCS micro site. In this direction, a practical IT platform has been developed and in some way, the participation of young athletes or new consumers has been ensured. The Organizing Committee has launched the IT platform Odyssey as a means of learning about sports, culture, and the Olympic values. All athletes and officials have been part of the development of wireless communications, and were included in the information system via the Digital Concierge, which, using a broadband technology, has achieved a successful communication with OCOG, members of their delegations, other participants, but also with their parents [20]. It can be concluded that Singapore has launched a new organizational standard and approach to young athletes, but also to the event managers and programme managers within the NOC, from whom an innovative approach in preparation and participation of the delegation at the Games was expected. The example of Singapore, and already visible technological standards for participation in the OG in London, suggest the conclusion that participation goes beyond the capacity of human resources and technological development of certain national sports systems, and that the transfer of Olympic knowledge and technologies implemented by the IOC is the only way to overcome differences, reduce the gap and successfully terminate the participation of each of 205 NOCs at the OG. The information system of the World Anti-Doping Agency (WADA), which includes the 24-hour availability of athletes to doping control requires building a national information network. It can be concluded that the OG have become a leader in promoting IT development and acceptance of the principles of the digital revolution in the sports movement. 2. Management of programmes for participation in the OG Whether as a process of forecasting, organizing, managing, coordination or control, and be it understood as a discipline, a process, a set of subprocesses or whatever, management has its own place and full importance in building a team for participation in the OG. The Olympic Games are the mega event Management Journal for Theory and Practice Management 2012/63 which you must take part in, which you must see, and which has a multifacet socio-economic influence both on those who organize it and on those who are preparing to participate in it. Participation in the Olympics is only possible through the National Olympic Committee (NOC). The mission of NOC in participation is aimed at forming a sense of belonging and togetherness in Olympism, a sense of exclusivity, superiority and excellence of athletes, delegations and the Games themselves. A path to the participation in the OG goes through three levels and through a vertical and horizontal organizational networks. At the highest or the macro level, IOC and OCOG do the management. The middle or meso level comprises international sports competition, within which the selection of those who will participate in the Games is made. This level is managed by the ISF, their national sports federations (NSF) and the NOC. The micro level is filled with activities that are, in the case of the National Olympic Committee of Serbia (NOCSrb), named by the innovative strategies filled by strategic and operational plans. At this level, the Olympic programmes are realized through which all participants of the Olympic delegation (athletes, professionals, managers, agencies, sponsors...), prepare, the team is built, and the system of sports in Serbia is changed. The Olympic programmes are somehow a national system of innovation, i.e. a line of measures and activities that should enlarge the efficiency of the preparation process for participation. The activities are realized on the level of operational groups and in line with segmented tasks (Organigramme 1). 2.1. Managing programmes an innovative step forward of the OCS The Olympic Committee of Serbia has estimated that it can develop only if it adapts, learns, and changes. The management of the NOCSrb from the Olympic cycle 2004 2008 opted for innovation, expert knowledge, and for linking them with the process of change and development of organizational capacity. The NOCSrb has become an organization that is learning and changing. In the first step, the changes and adaptations of the internal organizational structure and business culture were made, but then, in the second step, athletes, coaches, and key actors of Serbian sport, society, and economy were united in the Olympic idea, programme, and the participation in the OG. In the first step, the NOCSrb has conducted analyses to be better informed about its own organization, i.e. by which it gets the facts about sports environment and its membership (Table 1). The results on the environment have shown that it is an unconsolidated system with ambiguous factors, roles, responsibilities..., the absence of connections with science, market, technology, economics, legislation, government bodies responsible for sport. Aware of its mission and the seriousness of the results of this analysis, the OCS entered the next, cognitive phase of development during which there has been a consolidation of the sports system, while the roles, responsibilities, principles of management and work that will preserve the autonomy and specificity of sport were defined [17,19]. At the Joint meeting of all the actors of sports of Serbia (2006) a model was proposed that contained the structure of the new system of sports with clearly defined the place, the role of government bodies, political and economy structures of the sports environment (Diagram 1) [37]. The epilogue of this period is the development of the NOCSrb as a high-performance sports organization in the sports and business functions [41, 35]. Improvements are under way today, and in the business sense, they go through the planning and the most rational circulation of funds and constant coordination with marketing. Sports function made its way to change through planning, introduction, and control of the Olympic programmes. Strategic analysis made on the occasion of making the Beijing 2008 programme, indicated that the NOCSrb itself and its environment, consisting of NSF (Tables 1) must be changed in the direction of personnel, organizational, sports and technological, research and development functions [40]. In the first step the changes were delineated by the Beijing 2008 project, within which a number of subspaces for athletes training and standards for participation of the delegation at the OG were defined (Diagram 2). The mission of this project was an improvement of the sports system of Serbia, while its effect could be the system of sports, which, as a way of continuous development, accepted the strategy of changes, initiatives, and innovations. If we act today the way we did for the last Olympics, then we will not get anywhere. If we follow the examples of the best international practices in our work, then we shall be just the participants in the Games, but if we fill our every day with initiatives, then we shall win medals [1] is a quotation on the first page of this Project. Experiences in managing this project have been transferred to the NOCSrb project for the OG in Vancouver and the YOG in Singapore (2010), as well as for the project The Olympic Serbia which is realized with a view on participation in the OG in London (2012). The continuance of the cognitive phase is a systematization of a number of areas and defining the management project, which includes project management of the whole, by segments, in time, quality, human resources, communications, and risk (Organigramme 1). These also have in common the orientation towards the management of life, sports, and professional cycle of an Management Journal for Theory and Practice Management 2012/63 athlete, which also takes place as the innovation strategy by which an athlete and his/her talents are developed through humane, efficient, and competent system of sports. A new value framework developed for the participation in the YOG launched a homogenization of the athletes age, their environment (family, school, sports club) with a system of sport and participation in the OG. Diagram 1. Analytical model of the structure of Serbian sports system [18] It can be concluded that the NOCSrb, both in business and in sports functions, decided on the promotion of Olympic values and the expansion of the value framework in line with the needs of sport and the society in Serbia. By promoting national symbols, mascots, logos, letters... the NOCSrb is adding the identity of Serbia to cultural diversity and to one of the three pillars of the Olympism (the OG and sustainable development are the other two). Knowledge management, knowledge creation, knowledge sharing, and their use towards achieving organizational goals are the backbone of management of changes [25]. In organizational terms, the Directorate of Sports, Chief of Mission, and the NOCSrb Commission manage the explicit knowledge in the area of changing the sport system of Serbia, as well as technological and implicit knowledge of management of special events. The complex technology of participation in special events and simultaneous implementation of the Olympic programme, determined that the strategy of development of the NOCSrb should revolve around experts that possess the following knowledge skills [34]: Technical skills know-how that is related to methods, processes, procedures, techniques of preparation and construction of programmes and participation in the OG. Social skills, which include relationships with people, attitudes, motives, and skills in oral and written communication, encouraging teamwork cooperation. Conceptual skills, which describe a general analytical ability, logical thinking, deductive reasoning and indicative reasoning, problem-solving ability, creativity, anticipation, visionary and strategic thinking. For the existing relations in the sport system of Serbia, the skills with which the political structures are lobbied for the needs of sport can be considered as essential. The NOCSrb programmes present a technological innovation for the building and participation of the delegation at the OG. The innovation of a product (result, team participation, competent sports organization) and processes (the implementation of new technologies) are the value per se which is reached by NOCSrb through: (1) attitudes about the need for continuous change; (2) competent management of building a team to participate; (3) respect for the principles of science, best practices and collaboration with experts; (4) creating conditions for the legacy of each Olympic cycle; (5) change management and continuous adjustments in order to develop the NOCSrb performance and the sport system of Serbia [36]. 3. Life cycle (the Olympics) of the programme The characteristics of the NOCSrb programme for participation in the OG is planning by which clear, understandable, measurable goals are set and the course of action and the way of achieving the set goal are selected. Like other Olympic organizations, the programme orientation of the NOCSrb is accompanied Management Journal for Theory and Practice Management 2012/63 with risk and uncertainty, because the decisions for the event which will take place in the future are made based on currently available data. In other words, most decisions are made in relation to the current state of results of an athlete that is little known about [29]. In relation to this, the multi-year plan realized by the NOCSrb during team building and participation phases in the OG can be described as a business innovation directed towards the performance of athletes, but also towards the NSF and clubs in which the Olympic athletes of Serbia train. Therefore, programmes for participation in the OG mean a multi-year project, established both horizontally and vertically. The participation in the programme emphasizes the skills by which a future outcome (result) is linked to plan, knowledge, organizations, directing, controlling, budgeting, management and evaluation [12,4,1,6]. Activities to be realized are defined by OCOG, IOC, ISF, but primarily by the specificic features of sport of Serbia and value framework for the given game (Table 2). Drawing up the programmes is followed by their segmentation, leading to operational groups and tasks, the existing results of athletes (classification), the system of qualifications, training facilities, training technology, social care, sports medicine care and anti-doping prevention, programme efficiency of NOCSrb and NSF, sponsors, media, finance (Diagram 3) [37]. The classification into smaller operating units that can be adequatley managed (Organigramme 1) aims to control the efficiency of this process and its standardization according to the rules and numerous guidelines of OCOG and IOC. The operations part specifies the deadlines, and comprises a calendar with stages and periods that cover the entire life cycle of the Olympic programmes including participation in the games (Diagram 3). Table 1. An example of key activities of the NOCSrb for preparation of the programme and participation at the OG [38] Activities Planning Implementation Evaluation Corporate management Management Programme administration Commercial possibilities Finances Inform. technology Sports medicine Career of an athlete Education of athletes Sports medicine Life insurance Sponsorship Identification of the talented Sport in clubs Coaches, development and organization Activities Control, test and qualification competition Marketing and sponsorship pool Communication Media and PR Equipment, training material Elite sports technology Olympic team Training centres Sports sciences Development of NSF administration Junior sport Sport of the disabled Veterans Woman and sport Anti-doping New organizational structure Management of volunteers State as a partner  Management Journal for Theory and Practice Management 2012/63 Table 2. NOCSrb values for London Olympic Games programme Multi-year process of building the NOCSrb team for participation in the OG can be presented as a life cycle and described using an analogy with periods of human development. The transition from the previous to the next phase occurs as the effect of continuous cooperation with the first and second round of management participation (IOC, OCOG-OKI, ISF) (Diagram 1), and the same is the result of changes occurring in the field of culture, process and structural efficiency of the Mission formed by NOCSrb for participation in the Olympics. The last, fifth cycle of the said Games, which is also the beginning or the first period for the next OG, is preceded by three periods, i.e. takes place after the OG and the full maturity of the Mission. 1st period: The start of the team: in the case of the London OG, it took place in London during the Beijing OG. From a talent in Beijing to a medal in London is a slogan that connects the Serbian delegations at the Olympic Games in Beijing and London both semantically and in the programme. The start contains the definition of priorities (Table 1), the integration of business and professional policies, defining and accepting the value framework and corporate objectives. Thus, in the example of participation in the First Youth Olympic Games, the value framework was set in relation to a number of preferences selected in accordance with the athletes age and the programme realized by the NOCSrb for these games [20]. Programme activities are planned for the entire lifecycle of the programme and are presented by the roadmap (Diagram 3). Management Journal for Theory and Practice Management 2012/63 Diagram 2. An example of the road map until the participation at the Beijing OG [39]. 2nd period: The Birth is a period that encompasses the choice of the Chief of Mission (Cd(cid:0)), the Head of the medical team, a team of experts, partner institutions, sponsorship pool... This period is filled with professional reflexion from different practice areas (sports, sports medicine, management, anti-doping, OG management, marketing...) and project management. A large number of practice analyses are conducted in this period. The analysis of the structure and the analysis of the relationships lead to new and quality requirements for the realization of the vision and corporate management to the goal [9]. Management Journal for Theory and Practice Management 2012/63 Organigramme 1. Structure of the Missions activities for participation at the London OG. Media, Internet, social networks, diaspora, church  equipment, footware and clothes, MOC regulations  Transport of members of delegation  OKS sponsors; equipment  OCS presidency and committees  qualifications, applications, programmes and perticipation in the Games  OKS Board of Directors Chief of Mission    Media and promotion  Media part of Olympic delegation  Press accreditation and work (written, electronic, photographers, E journalism) Media, diaspora  Olympic team image, promotional editions, memorabilia  Serial and Olympic annexes               London 2012 Olympic cycle heritage  Olympic medical team  Health and life insurance  Medicaments and supplements  Medical equipment, medical records, therapy  Prevention and sports and medical examinations od sportspeople  Medical issues (Mission, Directorate of sports, Health committee) OCS London 2012 Mission  LOCOG, IOC, MSF  Qualifications, norms, quotas, reallocations  Accomodation, transport, equipment, grant, volunteers, ceremonies, imports, safety, exports  Training plan, technical meetings and ISF regulations  OCS mission in London, equipment, IT support  President, secretary general, SRB officials, OCS guests                                 Information technologies  Financial plan Team integration via Olympic programmes  OI daily administration Legal issues and OCS  code The Olympic Serbia programme  OCS office   NSF  Qualifications and olympic programmes  ISF regulations, norms and quotas  Expert team around sportsman (individual and team) Continual analyses and evaluations  Mission schedule and participation of sportsmen and officials London 2012 Olympic cycle heritage  Media Image of Team and its members Personal and NSF sponsors vs sOCS and MOC sponsors  Symbolic and structural integration  Olympic delegation building  OCS London 2012 delegation    Anti-doping (Directorate for sports)  IOK and OCS anti-doping code, OCS Test group  OCS - ADAS NSF WADA ISF- sportsman coordination  Prevention and AD strategy  Seminars for medical team, coaches, sportsmen  ADAMS, TUE, whereabouts       Coordination with the Republic Sports Institute, ADAS, Supplement and sports diet centre Olympic scholarships  Coordination with NSF  Olympic programmes  Programme results monitoring and analysis  Operations planning, programmes, OI administration  Directorate for sports   State - SRB   Support to OI programmes  Celebrations (team send-off and reception, flag, ceremonies, invited guests, diplomacy)  Applications and stay of state officials at OI  SRB and OI diplomacy  Safety issues and challenges W i i t h n t h e O l y m p c C o m i i t t e e o f  S e r b a i  i a b r e S  f o e e t t i i m m o C c p m y l P e h t e d s t u O i 3rd period: Childhood and Adolescence lasts until the departure to the Games. The management is making organizational improvements in the country. It is proactive towards the activities by OCOG. Qualifications of athletes are most intense in this period and in line with the ISF regulations. The NOCSrb programmes are taking place in relation to adopted objectives (Diagrams 2,3). Health management is realized on the basis of the analysis of sports and disciplines in which competitions will take place, as well as preventive and medical history of the athlete. The required examination of athletes is done in this period and, in the period since 2008, 410 athletes (seniors and juniors) have been included. Examination is a unique achievement of the NOCSrb and the Republic Institute for Sport and is performed as a function of prevention of sudden cardiac death, which is not rare in sports [33]. 4th period: Adulthood (activities in the OG) can be measured by what is accomplished, both in the size of the delegation, the results achieved, the health status of athletes, and in the efficiency of the delegation. During the Games, the Head of Mission and his team are responsible for the Olympic delegation, for the welfare of athletes and officials, for decision-making and for leadership. The complex and dynamic environment meets the daily activities that provide operational support to the athletes, games administration, medicine, media, IT, security, belonging to the group, participation in ceremonies (opening and closing ceremonies) [7]. The efficiency of resource management in the function of optimal participation in the Games is evaluated on a daily basis. Management Journal for Theory and Practice Management 2012/63 5th period: Old Age (the end of the Games, reports and evaluations), and Legacy (the legacy of the Games) are periods in management often supported by the development of different forms of reports, written forms with realistic picture of performance, but also in which conditions for further development and improvement are created. The case study (CS) and reflection are the methods used to monitor the effects and phenomena in their real context. The inner side of the CS is used to get the meaning of certain best practices. Descriptive side of the CS is used to describe and explain phenomena, whereas the instrumental side of the CS is used to analyze the relationships [13, 12]. Thus, the analysis of participation in the Beijing OG has led to the conclusion that the Project did not have a capacity of influencing all the factors that determine the quality of competition results, above all: voluntary and psychological preparation of athletes; reliance on sports science and sports medicine, managing sports fitness; conflicts in the NSF and among athletes training, health and anti-doping protocols and documentation; methods for rapid, efficient assessment of training condition; conditions in sports clubs; competence of coaches and managers for the elite sports results; the timely and full funding of all programmes. Diagram 3. Contents of the NOCSrb Olympic programmes [39, 1] Conslusion 1. Olympism is a unique movement that connects people, cultures and countries, promotes peace, and builds goodwill and cooperation. The Olympic Games are both a form in which Olympism is manifested and a mega sporting event involving the best athletes of the world. They promote peace and a value system cherished by all societies. High-profile staff with high organizational standards realizes the event management the OG. In order to participate, the NOC realizes multi-year programmes that represent the unity of the process, competent staff, and management system. 2. The Games are genuine, creative, and multiple developmental event. They are a synonym for progress, aspirations, visions, a part of the image by which a national and personal identity is built. Participation in the OG is more than just a sporting event and victory, because the Games are a mega event that overpasses stereotypes and other major sporting events. A unique and unrepeatable experience is achieved during the Games. Participation in the Games is a process that is planned and implemented through a number of organizational levels and within structured phases of change management. Management Journal for Theory and Practice Management 2012/63 3. The Olympic Committee of Serbia conducts multi year Olympic programmes for participation in the Games. Sports and business functions of the sports organization are improved by these programmes. They are an innovation in the part of the outcome (result, team, participation, and competent sports organization) and processes (the implementation of new technologies). The goals of these programs are new Olympic values. 4. Management processes that lead to the participation in the Olympic Games are based on the management of the project described by: Condition analysis of the organization and members, results of athletes, talents and ways of their development, resources, the process of achieving top results, preventive measures and risk… up to OCOG technology standards; Funding in accordance with the program. The financial plan of the whole program, the individual and the team is supported by the sponsors, the State and the IO; Knowledge management (sports science, sports medicine, IT), performance analysis and comparative analysis (benchmarking) and reflections; Innovation and project management that lead to quality described by competence and competitiveness of the delegation (individuals, teams, processes, outputs) on all the levels of preparation and participation in the Olympic Games. REFERENCES [1] Australian Sport Commission (2004). Planing in sport. Paragon Printers Australasia. [2] Aguerre, F. (2009). Changing for better games. In IOS (Ed) XIII Olympic Congress, Olympic Family Contributions, p. 132, Louzane [3] Bergsgard, A.N.; Houlihan, B.; Mangset, P.; Nodland, I.S.; Rommetvedt, H. (2007). Sport Policy, A Comparative Analysis of Stability and Change. Elsevier, Singapore. [4] Blouce, D.; Smith, A. (2010). Sport policy and Developement. Routledge, London. [5] Bogosavljev, P. (2009). How to keep the Games a Premier Event? In IOS (Ed) XIII Olympic Congress, Olympic Family Contributions, p. 136-6, Louzane [6] Camy, J.; Robinson, l. (2007). Managing Olympic Sport Organisations: OS and Human Kinetics, Louzane. [7] Chappelet, J.L; Bayle, E. (2005). Strategic and Performance Management of Olympic Sport Organisations. Human Kinetics, Champaigin, Il. [8] Chernyshenko, D. (2009). Criteria for measurement success of the Games. In IOS (Ed) XIII Olympic Congress, Olympic Family Contributions, pp. 139-40, Louzane [9] Chelladurai, P. (1994). Sport management: defining the field. European J. for S. Manag. 1: 7-21. [10] Coe, S. (2009). Why the World needs the Olympic and Paraolympic Games more than ever. In IOS (Ed) XIII Olympic Congress, Olympic Family Contributions, pp. 141-42, Louzane [11] De Bosscher, V.; Bingham, J.; Shibil, S.; van Bottenburg, M.; De Knop, P. (2008). The Global Sporting Arms Race. An International Comparative Study on Sports, Policy Factors, Leading to International Sporting Success. Meyer&Meyer Sport, Oxford. [12] De Senci, J (1990). Sport management circular evaluation and needs assessment: A multifaceted approach. J. of Sport Management 4: 31-58. [13] Edwards, A.; Skinner, J. (2009). Qualitative research in Sport Management. Elsevier, Ltd. Singapore. [14] Ferstil, C. (2009). Approaches to preserving the Games. In IOS (Ed) XIII Olympic Congress, Public Contributions, pp. 559-60, Louzane [15] Girginov, V.; Parry, J. (2005). The Olympic Games Explained. A student guide to the evolution of the Modern Olympic Games. Routledge, London. [16] Jeu, B. (1994) Sport, a Social and Cultural Phenomenon. In For Humanism of Sport Ed of. Comite National Olimpique et Sportif Francais, Paris. [17] Jevtić, B. (2009). Izazovi Novog olimpijskog ciklusa. Zbornik predavanja i Nacionalnog seminara za trenere, str. 7-22, Republički zavod za sport, Beograd. [18] Jevtić, B. (2011a). Sistem sporta, sportski stručnjaci i bolonjski proces. Projekat MOS i FSFV, str. 7-31. Beograd. [19] Radojević, J., Jevtić, B (2011). Društvo i dečiji sport. U Jevtić, Radojević, Juhas, Roper (Ed) Dečiji sport od prakse do akademske oblasti. Fakultet sporta i fizičkog vaspitanja, str. 31-43, Beograd. [20] Jevtić, B. (2011b) The Path of True Values. ACC Journal, Social Sceince and Economy. XVII : II 82-87 [21] Jevtić, B. (2011) Refleksija menadžmenta olimpijskih programa na sistem sporta Srbije. SportLogia 7 (2) 129-140, doi 105550 / sgia110702se129J Management Journal for Theory and Practice Management 2012/63 [22] Jevtić, B. (2011) Žena u programima OKS iskustva prethodnog i stategija olimpijskog ciklusa 2008 2012. Fizička kultura 65 (Sapl.) 29-41. [23] Kesenne, S. (2005). Do we need an Economic impact study or a Cost-Benefit-Analysis of a Sport Event? Europ. Sport Manag. Quarterly, 5:2: 133-142. [24] Lygkoni, K. (2009). Olympic Games: a microcosmos of human society. In IOS (Ed) XIII Olympic Congress, Public Contributions, pp. 561-62, Louzane [25] Martins, I. ; Petiz, O., Martins, A. (2010). Ljudski resursi u funkciji unapređivanja kreativnosti organizacionih inovacija. Management, 54 : 37-43. [26] Masterman, G. (2008). Strateški menadžment sportskih događaja. Marketing Klio, Beograd. [27] Matheson, V.A.; Baade, R.A. (2004). Mega sporting events in developing nations: Playing the way to prosperity? In South African J. Of Economics, 7285),pp.1085-1096. [28] Roshe, M. (2000). Mega-Events and Modernity : Olympic and Expos in the Growth of Global Culture. Routledge, London. [29] Rubingh, B. (1996). Sport management in the Netherlands. In IOC (Eds) sport Management and International Approach. pp 85-92. [30] Sanchez Martinez, L.C. (2009). May the Olympic Games succeed by improving their economic legacy. In IOS (Ed) XIII Olympic Congress, Public Contributions, pp. 564-65, Louzane [31] Sun, W. (2009). Make the Olympic Games stronger and more welcome. In IOS (Ed) XIII Olympic Congress, Public Contributions, pp. 568-69, Louzane [32] Čudanov, M. (2010). Organizacija specijalnih događaja. Skripta, Fakultet organizacionih nauka, Beograd. [33] Vasić, G. Jevtić, B., Mitrovic, N., Radovanović, D. (2011). Prve olimpijske igre mladih filosofija OKS u izgradnji tima i upravljanje zdravstvenom zaštitom. Sportska medicina, www. smas.org/casopis/sportska-medicina-2011 [34] Zeigler, E.F. (1987). Sport management: Past, present, future. J. Of sport Management, 1: 4-24. [35] Životić, D. (2007). Menadžment u sportu. DM Graphic Communication. Beograd. Documents: [36] Jevtić, B. (2008). Informacioni sistem Olimpijskog komiteta Srbije. Dokument OKS. [37] Jevtić, B. (2006-a). Sistem sporta Republike Srbije, predlog. Zajednička sednica činilaca sistema sporta Srbije. Dokument OKS. [38] Jevtić, B. (2006 -b). Projekat OKS Peking 2012. Dokument OKS [39] Jevtić, B. (2009). Projekat: Olimpijska Srbija. Dokument OKS. [40] Jevtić, B. (2003). Sistem plivanja u Republici Srbiji. Dokument PSS. [41] Nacionalna Strategija razvoja sporta u Republici Srbiji (2009 2013), www.mos.gov.rs Web adresses: [42] www.gamesmonitor.org.uk [43] www.ioc.org Receieved: November 2011. Accepted: June 2012. About the Author Branislav Jevtić Faculty of Sport and Physical Education and the Olympic Committee of Serbia e-mail: branislav.jevtic@dif.bg.ac.rs Dr Branislav Jevtic is full professor at the Faculty of Sports and Physical Education, University of Belgrade. He is the Sports Director in the Olympic Committee of Serbia and appointed Chief of the Mission of all multi-sport events under the patronage of the NOC of Serbia, including London OG 2012. The domain of scientific research of Dr Jevtic is the physiology of exercise and sport, theory of sport as well as management and leadership of Olympic - high performance programme. Management Journal for Theory and Practice Management 2012/63 Ksenija Mandić1,Boris Delibašić2 1 Crony d.o.o, 2University of Belgrade, Faculty of Organizational Sciences, Application of Multi-Agent Systems in Supply Chain Management UDC: 005.552.1:004.7 ; 005.57:005.591.6 DOI: 10.7595/management.fon.2012.0014 XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia In traditional business, negotiation is viewed as a long process, which has resulted in the development of computer methods to aid decision making.In recent years great effort has been invested in research and development of intelligent agents and multi-agent systems for automation of negotiation in supply chain management.The main task of multi-agent system is to link independently developed agents in a single system that allows collaboration and interaction between agents.That way you get much more efficient system for decision making in relation to the case of individual use of each of the agents.The aim of this paper is to highlight the positive effects that are achieved by the introduction of multi-agent technology in supply chain management.Application of multi-agent systems results in significant improvements in the field of communication and negotiation processes, costs reductions (expenditure of time and resources), customer satisfaction, supply chain efficiency,reduction of human work, inventory control, virtual poolingetc. Keywords: supply chain management, agent technology, the negotiation mechanism, multi-agent systems, intelligent agents. 1. Introduction The rapid development of products and a dynamic market require companies to reconstruct their functions and positions in the modern industry. In such circumstances, the companies will take appropriate actions to remain competitive in the global market. Concurrent engineering-CE is a productive way to survive in the global marketplace, it can be realized by simultaneous work of experts who have different functions within the company in order to produce specific products of high quality and functionality with minimum spending of time and resources (Figure1).The system of supply chain management is an effective approach to solve this complex situation.As an integrated network of suppliers, factories, warehouses, distribution centers and retail outlets, supply chain management system coordinates the processes in the entire logistics chain for faster and more flexible cooperation between companies, customers and suppliers. Figure 1: Assistants for CE realization (Ito & Salleh, 2000) Management Journal for Theory and Practice Management 2012/63 The cooperation of members in the supply chain management is a critical point in the implementation of effective supply chain;such implementation is not simple and cannot be efficiently performed using only conventional mechanisms of information exchange. Hence arise in business the new forms of collaboration and organization to facilitate joint work of suppliers and customers, to exceed the traditional type of organization within the linear supply chain to engage a large number of independent agents whose goal is a virtual association and formation of time-sharing resources. Such arrangements are described in the adaptive value network (AVN): Arrangement in which companies have close relationships, working together as a system that provides customized products and services, achieve quality and in a responsible and coordinated ways adapt to the changing environment (Makatsoris, Chang & Richards, 2004). The emergence of agent technology initiates the development of new architectures and modeling software and supply chain management (Liang & Huang, 2006). Agent programming (Jennings, 2000) is defined as a software development paradigm that combines artificial intelligence and distributed systems. In fact, agent programming is a set of software components that are designated as agents - autonomous and proactive agents who are able to communicate with each other (Wooldridge & Jennings, 1995). The application of agent technology provides to distributed environment, effective communication, thus making it easier to integrate the entire supply chain into an independent echelon of connected systems. Activities in the supply chain such as procurement, planning, monitoring, enforcement, etc.., are represented by the software agent.Great effort has been made to establish agent and multi-agent systems in managing supply chains, especially for applications such as - manufacturing, planning, procurement (Shen&Norrie, 1999; Jennings, Norman, Faratin, OBrien & Odgers, 2000; Leung, Wong &Sculli, 2006; Wong, Leung, Mark & Fung, 2006; Fang & Wong, 2010). In such systems, each agent operates on the basis of their internal models and the need to cooperate with other agents in the network. For example, an agent who represents the warehouse can immediately send stock availability to another agent who represents the customer in order to inform the customer about the availability of stock prior to ordering goods. This process in the business takes a lot of time even without the use of technologies. 2. Agent technology application The term software agent is very popular in recent years. Public entities and private companies spend a considerable amount of time, effort and money for research - development and promotion of the idea of a software agent. It is rather surprising, because in essence, software agents are doing what is expected of an advanced computer program that is able to perform a specific task with a certain degree of autonomy (i.e. without permanent leadership and human intervention) in their environment. However, the real potential of this technology comes into play when you put together a number of software agents in the same environment. In such a case, a set of agents is viewed as multi-agent system where the agents are focused on each other and coordinate their activities so that you can avoid negative interactions with other agents and take advantage of their combined capacity. The agent itself is a computer system that interacts with the environment, is capable of flexible and autonomous actions in dynamic and unpredictable multi-agent domains.Agents are autonomous software modules with the possibility perceptions and changing the state of the environment.The whole activity of an agent is related to the environment in which it is located, i.e. the environment is the source of its observation and the object of its actions.In the software sense, agents are typically implemented as examples of objectoriented classes, with appropriate identity, characteristics (attributes) and the rules of behavior (methods) Figure 2.The behavior of agents can ultimately be reduced to a mapping of type perception (cid:0) action, where the mapping mechanism can be encoded in different ways: a simple table, logical rules (IF... THEN), or other techniques of decision making (neural networks, fuzzy logic), and similar (Žujović & Petrović (2005)). Coding (and therefore the decision-making process) determines the degree of agents intelligence, which can range from simple reactive elements (type actions - response), to the complex structure of decision-making mechanism based on artificial intelligence techniques. Management Journal for Theory and Practice Management 2012/63 Figure 2: Schematic presentation of agent For each agent one can observe the following elements(Figure3): 1) the environment - managing environment or the environment under which the sensors are working, 2) sensors - allowing agents to perceive the environment, 3) effectors - which respond to the perception. AGENT=ARCHITECTURE+PROGRAM Figure 3: Agents features (Russel&Norning, 1995) To perceive the environment the agent uses sensors to which the stimuli come from the environment.The information gathered by the agent during the observation sequences is stored in the memory of the agent.The actions that the agent is able to perform depend on the sequence of observations. A mapping function is responsible for efficient and effective response of the agent. The mapping function maps the list of perceptual sequences during the action of the agent, and on the basis of this the table is compiled in response to each sequence of observations. The program whereby the agent functions is a function on the basis of which the perception mapping is done in the course of action.A program that is selected must be compatible with the architecture of the agent.The architecture of agents is a determined methodology for building agents; it determineshow the agent is decomposed into a series of modules and how these modules are connected.It is not only the structure of an agent but also shows the way in which modules perform their activities and link between the various agents.We cannot talk about the unique architecture of agents, but what it would be is dependent on the purpose of agents. Generally, the architecture of agents allows that the perception through the sensors be adjusted to the program, and to manage the program and pass the appropriate actions to effectors. 2.1. The importance of intelligent agents in the negotiation process Often the term agent is used instead of the term intelligent agent - intelligence is defined as the presence of mechanisms of behavior aimed at solving a given goal.Due to the large amount of information that surrounds us in modern society, we need intelligent agents to enable efficient navigation.Intelligent agents (IA) are Management Journal for Theory and Practice Management 2012/63 software that can automatically perform a task set to it by a person or other software (agent).When the agents are set once, they perform their tasks automatically, without further user intervention.These are most commonly used for automatic information search, for answering questions in the field of their knowledge, to inform users about interesting events (e.g. the emergence of a new article on the Internet, information on the possible occurrence of problems on the road between the initial and final destination, whether the given term appears somewhere on the web, etc..), for the current and personalized news, for intelligent decisionmaking process of users, to search the goods according to the criteria of most favorable price, for the provision of automated services such as checking of changes to web pages and the like. The intelligent agent is defined as a program that aspires to the objectives and with minimal referrals, using intelligence or heuristic techniques.In addition to intelligence, the key features of intelligent agents are: learning - from the user, other agents, from other sources collaboration - working with other agents to achieve their goal mobility - the mobility of agents in the network, the realization on different computers personalization - the knowledge of their users, their interests and preferences adaptability - learning from different sources, from the users actions (Rudowsky, 2004). These features facilitate the process of developing a complete system, helping to isolate the abstract and the irrelevant, and to focus on analysis and design of important characteristics of a particular problem (Garcia, Giret & Botti (2011)). The role of IA is essential for successful communication process and negotiation between the company and suppliers; they provide us with relevant information to achieve objectives.The basis of negotiations is in reaching an agreement between the agents in providing services, and this approach has been used to manage conflicts that arise between the intelligent agents (Ito &Salleh, 2000).IA start with negotiations after defining the communication objectives, and end by making certain decisions during the process of using different strategies and techniques to generate the initial offer.They have a high degree of self-determination and decide alone when, where and under what circumstances the actions will be performed.The interaction of agents can be directed to any particular action, change of the planned course of action and agreement on a common course of action.Interactions between agents enable rationalization and integration of the entire process of cooperation in the management of supply chains. the individual settings Figure 4 represents participants in the life cycle of negotiation: 1) the analyst and owner: describing and formalizing objectives, 2) designer: forming plans for achieving the goals of the agents through interactions, 3) implementer: implementing a designed strategy by using respective protocols and tools for achieving the goals. In the first step in the life cycle of negotiation, the negotiation analysis suggests the need to acquire and model for protocol and negotiation strategy. The negotiation mechanism of the agent negotiation must have an adequate strategy and negotiation protocol (Fang& Wong, 2010; Chen, Peng, Finin,Labrou& Cost). Negotiation protocol is used to organize messages between agents, determine the flow and format of messages between the negotiating parties.On the other hand, the strategy of negotiating is a way in which negotiating party acts in order to achieve the best outcome of negotiation (e.g. what to assign what you keep), so the strategy for each participant is personal.In the next step, designers tend to define strategies and protocols the final step, achievement of objectives.In implementers are looking for group commitment through the communication exchange.IA work on behalf of their participants, and they have specific skills to manipulate other members according to their assignment using the plan and protocol of negotiation.When IA negotiates, it discovers its goals to the other members, identifies conflicts,seek solutions to conflicts and concentrates on finding the ideal solution for achieving its goals. Figure 4: Life cycle phases of negotiationsand participants in it (Ito &Salleh, 2000) that will enable the Management Journal for Theory and Practice Management 2012/63 2.2. Evolution of multi-agent systems The systems in which multiple agents work together to execute a task or solve ommon problem are called multi-agent systems (MAS).MAS represent an information echnology that is rapidly developing as a result of agent technology, i.e.autonomous oftware modules that represent real-world objects.Such a system is in fact a broad networkof software agents that collaborate to solve problems that are beyond the individual capacities or knowledge of any classical way of solving problems.Such systems are ideal for modeling problems for which there are several different methods for solving and multiple perspectives.In systems builtin this way, instead of a control agent managing the process, the management is divided into several agents which, according to their specialties, assume responsibility in controlling the complex process.Using multi-agent system increases the overall security of the system in situations of cancellation of one of the agents, or the entire system can be automatically reconstructed or stopped in a controlled way. Figure 5: Architecture of agents: Components of agents in multi-agent systems In such systems only the elements of the system are explicitly modeled, while the dynamics of the entire system is left to itself, i.e.it will arise spontaneously from the interaction of its own elements. Systems composed of agents consistently follow the system definition - a collection of elements in mutual interaction (Figure 5). This significantly facilitates the process of modeling, because the behavior of elements in most cases can be described precisely, whereas the behavior of the system is often so complex that it is impossible to express it in a formalized form. The overall aim of MAS is to create a system that specifically interconnects agents and to allow the ensemble to function without the possibility of any individual adjustments (Ren & Anumba, 2003). The conceptual basis of MAS is given in the theory of complex systems whose rules are not explicitly defined, and there is no centralized element that governs the global dynamics (Zujovic & Petrovic, 2005). According to this definition of the MAS we can exclude those systems where there is a central planner or designer that controls the decision-making processes of local agents.In other words, the MAS is defined as a completely decentralized system. Therefore, only systems that enable meaningful interaction between agents can be classified as true MAS. MAS attracted great attention of experts from many different scientific fields, both in nature and in the social sciences. The growing interest in this type of networking occurs because of the possibility to ensure efficiency in solving problems in which the data, expertise and control are distributed. When designing MAS it is necessary to define the number of agents, a critical amount of time to perform the task, the dynamics of the arrival of the goals, communication costs, cost of failure, the impact of users, and the uncertainty of Management Journal for Theory and Practice Management 2012/63 the environment. At the level of each agent the following should be defined: the initial state of the domain, the possible actions of other agents and the output actions of the agents. Multi-agent systems attempt to solve the whole problem by mutual cooperation and thus give a better answer to complex problems. This paper demonstrates how agent technology enables us to solve communication relationships in the distribution environment. Multi-agent simulations do not provide a solution to all problems, nor do they necessarily make a replacement for the classic techniques of modeling and simulation. Instead, they should be treated as a complementary approach to conventional models, which are used when conventional techniques cannot give the desired results. 2.3. Application of MAS in SCM Supply chain is a network that includes all the elements involved in materials transformation into a finished product and transporting it to the end user.Managing the supply chain becomes especially complex if it is based on outsourced functions which cover almost all activities from production, to sales and distribution.Such a situation introduces uncertainty into the business and results in delicate business relations, to be held and managed effectively. Therefore, MAS is trying to solve the whole problem by agents collaboration. As members of a supply chain the software agents are engaged in automating the buyerseller negotiations in the supply chains management (Kersten& Lo, 2003, Braun et al 2006). In this way, MAS can assist in solving complex problems and making decisions or support the people to decide.Agents are especially suitable for coordination in supply chains due to the following characteristics: Information, resources and control over data and resources are essentially distributed (Jenssen, 2004) The supply chain is adaptive and changes over time. Agents should serve as unifiers of components of supply chain management which is owned by the particular entity in the supply chain (Julka, Karimi&Srinivasan, 2002). Figure 6: Schematic presentation of agents in SCM (Saberi and Charalampos, 2008) Management Journal for Theory and Practice Management 2012/63 The company is required to quickly and effectively respond to the order to meet customer requirements.However, an unexpected rush of orders causes delays in delivery and reduces efficiency.It is clear that to solve such problems one should develop a mechanism such as the MAS, which integrates various functions.In multi-agent environments, autonomous agents need to interact with one another to achieve their goals because reciprocal dependencies exist among them. In this context, negotiation is a fundamental tool to reach agreements among agents with conflictive goals in both competitive and collaborative scenarios (Monteserin & Amandi (2011)). The proposed algorithm (Figure 6) demonstrates the concept of virtual markets and facilitates supply chain management in a dynamic environment.Although collaboration is a basic characteristic of virtual market (due to the changing environment and autonomous / heterogeneous nature of the members of the virtual market), it can only succeed if activities are properly managed in the supply chain.A schematic model follows the behavior of each individual agent (DA-agent distributor, RA- agent seller, CA-agent customer, FA-agent for the forecasting).It is evident that there is one database, which can be accessed by all the agents.Furthermore, agent for forecasting processes this information and forwards it to the agent seller and agent distributor. 3. Effects of applying intelligent agents and multi-agent systems Technologies of intelligent agents and multi-agent systems represent one of the most promising directions for the development of a system based on the Internet and knowledge in logistics.Intelligent agents represent the organization within the logistics domain models and their logistics functions, processes, expertise and interaction with other organizations (Graudina&Grundspenkis, 2005). MAS is currently used as an efficient way to solve a wide range of problems (Vallejo, Albusac, Mateos, GlezMorcillo & Jimenez (2010)), in the field of planning, real-time control, robotics and many other industrial areas.Expansion of the use of MAS-based model of software engineering (Jennings, 2000) is based on: the use of autonomous agents that solve complex and distributed problems, use of language (Bordin et al., 2006), or even making standards (Foundation for Intelligent Agents Physical, 2002).In other words, Agent programming is used to design a problem in cases where other approaches are insufficient and incomplete. The reasons for the introduction of IA and MAS in commercial systems are as follows: introducing this type of technology enables performance of various tasks such as making decisions, solving various problems that normally require the human intelligence, such as problem diagnosis, data classification, planning and negotiation; identify critical information with the input of resources, monitor and take action based on the information context (information sharing, forecasting knowledge and use of the negotiating mechanisms); autonomously collect duties on behalf of users, this kind of programming does not require constant user intervention. Reduce human work by using the automated agents which act on behalf of the users. Spare the user from having to find, negotiate, and in general deal with buyers and sellers. such systems connect separate agents and create ensemble of functions that is beyond the capacity of any individual agent.This ensemble provides flexibility in the conduct of affairs, and is more efficient for solving complex problems; promote cooperation between members of the supply chain, although the interaction between the IA can lead to conflict and coalition.Negotiation techniques are used to overcome conflicts and coalitions in order to achieve agreement between agents rather than persuasion to accept the already existing solution.Negotiation is the core of many agent interactions; virtual pooling (virtual market concept) and time-sharing resources. The positive effects achieved by the introduction of IA and the MAS: successful process of communication and negotiation between manufacturers and suppliers, creates good communication networks that allow the satisfaction of customer requirements.MAS are inexpensive standardized communication infrastructure, which includes separate agents that interact in an open and real-time environment and provide transaction security; increases supply chain efficiency - integration and coordination of various systems and processes in the supply chain, facilitating the supply chains management in a dynamic environment. Management Journal for Theory and Practice Management 2012/63 achieve an efficient flow of materials and total costs reduction - reduced consumptions of time and resources, the agents are faster than humans, using the automated agents can save the transportation and communication costs that human contact may incur (Linlan, Haigang, Xueguang & Hong (2011)) reduction of the bullwhip effect reduces oscillations of user requirements and improves the forecast level of reserves and resources. Thus it determines the above demand and reduces the total operating costs. inventory control is enabled (e.g., an agent who represents the warehouse can stock availability information to other agents in order to know the stock availability at any time) provide answers to uncertain market, merger and division of competence risk. increase the security of the system in situations of failure of one of the agents. such networks, regardless of the state, are always active and ready to respond. A significant advantage in applying multi-agent model is in that it can be constructed even if the legality of the behavior of the whole is unknown (entire system). Multi-agent simulation capabilities are higher compared to conventional simulation models, and are used to express more complex dynamics and structure. Agents in multi-agent simulation models are heterogeneous and thus enable a more realistic view. Also, these models are generally easier to maintain, because all of the updates are made to the level of individuals - agents. Elements of multi-agent simulations are relatively faithful copies of objects from the real domain, which considerably facilitates communication between policy simulations (programmers) and endusers (experts in the subject area). Conslusion The area of autonomous agents and multi-agent systems is very diverse and represents an area that is rapidly expanding.It is a combination of several scientific fields such as distributed processing, object-oriented systems, software engineering, artificial intelligence, economics, sociology, organizational science. The methodology of the program based on agents provides a range of effective tools and techniques that have the potential to significantly improve the technique of software ranging from conceptual design through to actual implementation. During the past two decades a significant number of improvements is evident in design and implementation of autonomous agents and how they interact. Multi-agent systems introduce a new approach to modeling, which is reflected in the specific relationship between global and local (and elements of the system). Modelling is reduced to explicitly defining the elements of the system, while the dynamics of the entire system arises spontaneously from the interactions of the components.This significantly facilitates the process of modeling, because the behavior of elements in most cases can be described precisely, whereas the behavior of the system is often so complex that it is impossible to express it in a formalized form. Agent technology has offered a powerful repertoire of tools and techniques that have the potential to significantly improve the way people conceptualize and implement many types of software.Agent technology is gaining in importance and it is used to solve real problems, and commercial applications.Agents are used in a growing, wide variety of applications from small comparative systems, such as personalizede-mailfilters to large, complex systems such as air-traffic control.Natural and simple is that so many different applications can be represented by agents, and that is what best explains why researchers and developers are impressed by the given approach potentials (Saberi &Makatsoris (2008)). Management Journal for Theory and Practice Management 2012/63 REFERENCES [1] Chen, Y.,Pen, Y., Finin, T., Labrou, Y.,& Cost, S. A negotiation-based Multi-agent System for Supply Chain Management [2] Fang, F., & Wong, T.N. (2010) Applying hybrid case-based reasoning in agent-based negotiation for supply chain management, Expert Systems with Applications, 37(1). 8322-8332 [3] Garcia, E., Giret, A., & Botti, V. (2011) Evaluating software engineering techniques for developing complex systems with multiagent approaches, Information and Software Technology 53, 494-506 [4] Graudina, V., & Grundspenkis, J. (2005) Technologies and Multi-Agent System Architecures for Transpotrtation and Logistic Support: An Overview, International Conference on Computer System and Technologies CompSysTech 2005. Available at: [5] Ito, T., &Salleh, M.R. (2000) A blackboard-based negotiation for collaboration supply chain system, Journal of Mterials processing Technology 107(3), 398-403 [6] Janssen, M. (2004) Insights from the Introduction of a Supply chain coordinator Business Process Management Journal, 10(3), 300-310 [7] Jennings, N.R., (2000) On agent-based softwere engineering. Artificial Intelligence, Elsevier 117(2), 277-296 [8] Jennings, N.R, Norman, T.J, Faratin, P., OBrirn, P., & Odgers, B. (2000) Autonomous agents for business process management, Applied Artifical intelligence, 14(2), 145-189 [9] Julka, N., Karimi, I., & Srinivasan (2002) Agent-based supply chain management 1: framework Computers and Chemical Engineering, 26(12), 1755-1769 [10] Kersten, G.E., & Lo, G. (2003) Aspire: Integration of negotiation support system and software agents for e-business negotiation. International Journal of Internet and Enterprise Management, 3(1), 215-293 [11] Lianga, W.Y., & Huang, C.C. (2006) Agent-based demand forecast in multi-echelon supply chain Decision Support Systems, 42(1), 390—407 [12] Linlan, Z., Haigang, S., Xueguang, C. & Hong, L. (2011) A simultaneous multi-issue negotiation through autonomous agents, European Journal of Operational Researches 210, 95-105 [13] Leung, C.W., Wong, T.N., & Sculli, D. (2006) A framework for agents conducting e-business in a supply chain, Journal of International Technology and Information Management, 15(3), 47-66 [14] Makatsoris, H., Chang, Y., &Richards, H. (2004) Collaborative sense-and-respond ICT for demand-driven value network management. In: Chang, Y., Makatsoris, H. and Richards, H., Evolution of supply chain management Symbiosis of adaptive value network and ICT, 483-514, Boston: Kluwer Academic Publisher [15] Monteserin, A., & Amandi, A. (2011) Argumentation-based negotiation planning for autonomous agents, Decision Support Systems 51, 532-548 [16] Ren, Z., & Anumba, C.J. (2003) Multi-agent systems in construction-state of the art and prospects Automation in construction, 13(3), 421-434 [17] Rudowsky, I. (2004)., Intelligent Agents, Brooklyn College, Proceedings of the Americas Conference on Information Systems, New York. [18] Saberi, S., &Makatsoris, C. (2008) Multi Agent System for negotiation in Supply chain management, The 6th International Conference on Manufacturing Research (ICMR08), Brunal University, UK, 9-11. Septembre 2008. [19] Shen, W.,& Norrie, D.H. (1999) Agent-based systems for intelligent manufacturing: A state-of-the-art survey. Knowledge and Information Systems, 2(1), 129-156 [20] Vallejo, D., Albusac, J., Mateos, C., Glez-Morcillo, Jimenez, L. (2010), A modern approach to multiagent devolopment, The Journal of Systems and Software 83, 467-484 [21] Wong, T.N, Leung, C.W., Mak, K.L.,& Fung, R.Y.K (2006) Applying hibrid case-based reasoning in agent based negotiations for supply chain management, Expert Systems with Applications, 37(1), 8322-8332 [22] Wooldridge, M. (2001) An intraduction to Multiagent Systems, John Wiley&Sons, Inc., New York, NY, USA [23] Wooldridge, M.,& Jennings, N.R., (1995) Intelligent agent: theory and practice. Knowledge Engineering Review, Cambridge University Press 10 (2), 115-152 [24] Xiaolong, X., Qiping, S., Heng, L., William, J. & Zhaomin, R., (2009) Improving agent-based negotiation efficiency in construction supply chains: A relative entropy method, Automation in Construction 18, 975-982 [25] Žujović, D., & Petrović, L. (2005) Multiagentne simulacije u telekomunikacijama, XIII telekomunikacioni sajam Telfor 2005, Beograd. Receieved: April 2012. Accepted: June 2012. Management Journal for Theory and Practice Management 2012/63 About the Author Ksenija Mandić Crony d.o.o E-mail: ksenija.mandic@crony.rs Ksenija Mandić received the B.S. degree in 2006, and the M.S. degree from the Faculty of Organizational Sciences, University of Belgrade, Serbia, in 2008, both in quality management. She is currently working toward the Ph.D degree with the above mentioned faculty. From 2007, she has been employed in company CRONY d.o.o. Boris Delibašić University of Belgrade, Faculty of Organizational Sciences E-mail: delibasic.boris@fon.bg.ac.rs Dr. Boris Delibašić is an associate professor in Business Decision-Making at the Faculty of Organizational Sciences, University of Belgrade in Serbia. His main research interests are in data mining, decision support systems, business intelligence, and decision theory. Dr. Delibašić is also an adjunct lecturer at the University of Jena in Germany. Management Journal for Theory and Practice Management 2012/63 Slobodan Panić National Bank of Serbia, the Institute for Manufacturing Banknotes and Coins Topčider, Belgrade Responsible Restructuring the Most Important Aspects UDC: 005.35:005.591.4 DOI: 10.7595/management.fon.2012.0016 The restructuring is a complex process of adjusting the company for changes that come from the environment, in order to increase business efficiency and competitiveness. The two most important things for a successful restructuring are the justice and communications. Responsible companies are companies with vision, who knows that worrying about employees today, provide their own prosperity tomorrow. The restructuring should be seen as an opportunity for the company to direct its focus on those areas of business where it made its greatest comparative advantages. Employees in such circumstances should be regarded as the highest value of the company to be developed, not as an expense that should be reduced as soon as it appears the first signs of crisis. Keywords: The restructuring, business efficiency, Procedural justice, Distributive justice, communication strategy The restructuring is a complex process of adjusting the company to changes that come from the environment, in order to increase business efficiency and competitiveness. This process is characteristic for both the developed market economies and the countries in transition. The changes that occur in the former socialist countries are associated with the reforms of the political system and they,as a rule, are followed by delicate socioeconomic consequences. The transition of state enterprises to the market economy is a process that is itself very complex. In the conditions of a turbulent environment, restructuring becomes a more complex process, far more complicated than the one that takes place in the companies that have had decades of experience in market operations. If we add the cultural, ideological, moral, legal and other differences that shape the macroenvironment of companies in different parts of the world, it is clear why it is not possible to define precise and universal guidelines for successful restructuring. However, there are certain rules of conduct applicable to all systems,which contribute to the transformation of the company to be conducted with less trauma and greater chances for a successful outcome. What is desirable and what should be avoided in the restructuring is the subject of this chapter. The two most important things for a successful restructuring are the justice and communications. Justice refers to the application of what is fair, in particular, to an impartial adjustment of conflicting demands or determination of a deserved reward or punishment. Procedural justice refers to the procedures used in decision making. The procedures are fair to the degree to which they are consistent in relation to the people and in relation to the time, free from prejudice,based on accurate information, correctable and based on the prevailing moral and ethical standards.[1] Distributive justice refers to the outcome of such decisions such as the awarding of bonuses and making decisions about layoffs. It exists if there is a belief that everyone gets what he deserves. Procedural and distributive justice together form a broader concept called organizational justice. The perception of employees in terms of fairness has important effects on their attitude and behavior. The workplace is considered to be fair when there are three basic elements present: trust, openness and respect. If the organization operates I a fair manner, it respects each person who contributes to its success and demonstrates that every individual is important. All three elements of fairness are very important to maintain the engagement of a person at work. Procedurally fair behavior evidently resilts in reducing stress, increasing productivity, job satisfaction and organization commitment. It also encourages the socalled organizational membership behaviors (discretionary individual behavior that exceeds his/her official role, willingness to help colleagues, voluntary applying for new jobs, respect for rules and procedures even when they are not considered to be suitable to the person concerned, the interest in the organization and the defense of organizational goals).[2] Management Journal for Theory and Practice Management 2012/63 The perception of procedural justice is particularly important for employees during periods of significant organizational changes, because then it becomes a decisive factor that determines their attitudes and behavior. Procedural justice has three components.[3] The first is the voice of workers and means that the policy of the organization should leave enough space and opportunity for workers to influence decisionmaking. Previously, we had an example of a company that set a condition to its employees it is necessary to reduce costs and you choose how it is to be eccomplished. The final outcome was beyond all expectations and the company has, in only 3 months, recorded a positive financial result. The second component is an interactive justice and refers to the quality of human relationships which the worker faces in their daily work. This kind of justice exists if the company treats the employee with dignity and respect. Injustice is manifested in various forms of destructive behavior: inconsistency, attacks on privacy, abuse of authority, coercion, deception, public criticism, violating of dignity and the like. The employees perception of interactive justice, primarily in the area of relations with superiors in the company, substantially determines their relationship to leadership in general, affects job satisfaction and productivity. Informational justice is the third component of procedural justice. It is expressed in providing explanations about the decisions made. Responsible companies regularly inform their employees about the important issues for the organization, thereby reducing uncertainty and encouraging organizational affiliation. Informing is especially important at the time the redundances have to be decided upon. Employees who remain in the company, as well as those who are made redundant, show more positive reactions and a greater loyalty to the organization if they are informed in advance about the reasons for dismissal and if it is explained to them how they will contribute to the company to get out from the crisis. The management of the company that undertakes the restructuring should know that the first question each employee will ask is: Did you treat me fairly?. The answer to this question will define their overall behavior and attitude toward the company. Communication is very important, particularly in times of major change. To illustrate the impact of communication in business, we will use the results of a fourmonth investigation into two companies, that merged. [4]The reasons for the mergers were increased competitiveness, through a combination of complementary product lines and cost reduction elimination of certain duplicate functions (administration, transport, distribution, etc..). Both factories have produced the same product, with approximately the same number and structure, with similar patterns of governance and the level of profits. In the preparations for the fusion and during its realization one factory gave its employees detailed and timely information, but the other retained its previous system of information. The researchers conducted a survey of workers in both factories, in the period immediately after the merging announcement, and three months later. In the first company, immediately after the decision was made and before the media got the information, all employees received a letter from the manager that informed them about the merging, including the reasons and the expected effects. The workers were also informed about the implications that merging would have on them. To facilitate a twoway communication between the management and the employees, the company implemented three modes of communication: bulletin of the merging, the phone line for the employees to get informed and weekly meetings of managers, lowerlevel managers and workers in all eight organizational units of the factory. The intention was to provide employees with relevant, frequent and accurate information about merging, a fair treatment of the workers and to give precise answers to their questions. The second company did not submit additional information after the first letter was distributed to all the employees. The changes in the perception of workers, two weeks after the announcement of the merging and three months later, were dramatic, as seen from the following table: WORKERS PERCEPTION Stress Uncertainty Job satisfaction Commitment The companyisfair, honestandcareful I intendto stay Productivity Table 4.2.1. Differencesin perceptionsof workers CONTROL FACTORY EXPERIMENTAL FACTORY increasing 9% increasing 24% reducing 21% reducing 11% reducing 25% reducing 12% reducing 20% without change increasing 2% increasing 7% without change increasing 14% reducing 6% without change Source: Vein F.Cassio, Responsible Restructuring, p.177 Management Journal for Theory and Practice Management 2012/63 In both factories, immediately after the publication of the merging, the employee responses were negative. However, as soon as the program of intensive informing began, the situation in the experimental factoryhas began to stabilize. The perception of fairness, honesty and attention of the company, as well as personal productivity assessment, began to rise and returned to the level before the merging announcement. In the control factory, the attitude of the employees to the changes remained emphatically negative. Instead of decreasing, the initial tension grew as the process progressed and the company wa faced with serious problems. These results are entirely consistent with the results in the field oforganizational justice. Even when they are affected by the outcome of the process, the employees are less dissatisfied, if they understand the reasons and actions of the management and if they deem them fair. Because of that, the openness and constant communication are most important for successful restructuring. It should be known that a majority ofemployees are confused and worried about the changes that are to come, which negatively affects their criticism and objectivity. Insignificant events may seem very important to them,random errors, when connected, can be perceived as a conspiracy. In accordance with the changed role of businesses in the society, it is of great importance for internal and external public to believe that the organization acts as a socially responsible entity, which should be based on the principles of voluntarism, comprehensiveness and transparency. In the absence of real information, employees set their own versions, and this is an excellent ground for disinformation. In a situation where they do not understand the reasons for changes and fear for the outcome, it is natural that employees do not support the changes, they are reserved and sceptical, and often show an open resistance. The communication strategy should achieve the following goals:[5] To gain understanding and acceptance by the staff; To minimize the effects of uncertainty; To make people keep their focus, energy and commitment to the organization; To provide support to shareholders and other stakeholders; To change the behavior of employees in accordance with the new objectives of the organization; To maintain productivity. Indirect communication via the Internet, other forms of electronic communication, written communication, newsletters etc. are acceptable, but they cannot be a substitute for personal remarks to employees. A two way communication based on the listen talkpersuade in terms of important changes, is simply irreplaceable. It is also essential that the source of information should be true. Important announcements should be provided by thegeneral manager, not a direct supervisor. His information should be based on a story that is true, consistent and understandable, the vision must be clear,even if the details were not, the middle and lower level management should be aware of that and the report has to be confirmed by the facts from the previously prepared and tested materials. The reference to confidentiality, template approach, surprises and empty promises are counterproductive. A good way is to address large groups, followed by a number of meetings in small groups.The meetings in small groups allow a genuine dialogue in which a person can hear and weigh the arguments from both sides. The persons responsible for direct communication with employees should be trained and well prepared. There must be a full compliance within the management in the company, at all levels. Long intervals between one announcement and another should not be allowed. Information should be simple and consistent, so that all employees should understand it. Channels of feedback should be always kept open, so the administration would know what the attitudes of workers are, whether and in whatdirection they are changing and adjusts its actions accordingly. Along with communication the most important operating parameters should be chacked. The plan for restructuring must be flexible to incorporate the essential facts that arise during the implementation. What is really the link between companies and employees can be seen only when a crisis occurs. Responsible companies are companies with vision, who know that care about employees today, provide their own prosperity tomorrow. They are also familiar with the ups and downs of normal business operations and they are preparing for them. So the first step in responsible restructuring is planning. Prevention is the main difference between organizations that are ready for and welcome changes with the detailed mechanisms and those who at the first signs of a crisis react reflexively and take shortterm and often illconsidered steps, which usually results in a mass dismissal of employees. The second step should be the analysis of the reasons for restructuring. What are the real causes of the crisis, are there other solutions (selling unprofitable assets, reducing costs, etc..), whether and to what extent Management Journal for Theory and Practice Management 2012/63 the employee dismissal solves the problem, how it will affect the workers who leave and those who remain, how the highest quality workforce can be retained, in which way the actions taken will affect the mission and the vision of the company, etc. are just some of the issues that companies must take into account in the restructuring process. The third step is to analyze the advantages provided by the stability. The previous research has shown that both the short and long term stability give better results than layoffs. The fourth step should be to inform the employees about the problems and involve them into decisionmaking, even before the final decision on restructuring is made. The management needs to know who the best workers in businesses are and in particular to respect their opinion, both because of their expertise and of the fact that they have a significant impact on other employees. Even when layoffs are unavoidable, the involvement of employees creates a sense of belonging, of personal control, reduces uncertainty and tension to an acceptable level. Fifth, the management needs to know what the real reasons for bad business are and not to use the dismissal of employees as the fastest cure for achieving short term goals, if the company is faced with longterm problems. It should consider all other options so that dismissals should be the last step, not the first. The management at all levels should, together with employees, seek solutions and to jointly bear the burden of reforms. The sixth step is related to cost reduction, which is usually the first reaction to the crisis. Such management behavior is logical, but it is still necessary to ask for the opinion of employees on what benefits they can give up most easily. Management should provide employees with a feedback on the amount of savings and what effects it has on the organization. The seventh step if it is not possible to avoid making people redundant, this should be presented in a fair, consistent manner, and in a manner that allow employees to preserve their dignity. The redundancies should be announced as soon as possible. Management must find a way to retain the best employees, in times of crisis as well, because it is the most important prerequisite for the relaunch of the company. The eighth step a regular communication with employees through a dialogue and communication, which is always important for the company, and especially in the times of crisis. The announcement of all relevant information creates an atmosphereof trust and honesty and is the is the only way to quench rumors and to avoid misunderstandings. Ninth the company must do everything it takes to keep the remaining employees and to provide conditions for potential new employees to join. It is on the commitment and confidence of workers who remain that the future operations and the future of the company depend. They are expected to assume a greater burden, to be fair to customers, be inventive, to cherish an organizational culture, etc., all these in the conditions of redundancy threats when they suffer considerable pressure themselves. Tenth restructuring means change, which means that management and employees should work differently int he new circumstances. They have to be prepared for it and adequately trained, so they would be able to effectively and swiftly respond to the demands posed by the new organization. Without raising the quality of those who remain, the redundances are just a move that may bring immediate effects, however, the final result is deeply problematic. The eleventh step is a careful and longterm human resource planning and coordination of this plan with other strategic documents of the company the analysis of macroeconomic conditions, market research, business strategies of companies, etc. Human resource management should include all relevant issues, such as: the reward system, measuring thecontribution of each employee, stimulating innovation, training and development, employee informing, benefits, including workers and their associations into decisionmaking processes, recruiting and selecting new employees, acting in crisis etc.[6] The restructuring should be seen as an opportunity for the company to direct its focus on those areas of business where it achieves its greatest comparative advantages. Employees in such circumstances should be regarded as the highest value of the company to be developed, not as an expense that should be reduced as soon as the first signs of crisis appear. Stability, ethics and honesty are the most important motivational factors that produce the desired reaction of employees dedication, customer care and innovation. These are, at the same time, traits that make responsible companies different. Management Journal for Theory and Practice Management 2012/63 Conslusion The restructuring is a complex process of adjusting the company for changes that come from the environment, in order to increase business efficiency and competitiveness. The transition of state enterprises to the market economy is a process that is itself very complex. In conditions of the turbulent environment, restructuring becomes more complex process, far more complicated than the one that takes place in companies that have decades of experience in market operations. In such circumstances it is particularly important that this process takes place with respect to principles of fairness and openness in communication between stakeholders. What is really the link between companies and employees can be seen only when a crisis occurs. Responsible companies are companies with vision, who knows that worrying about employees today, provide their own prosperity tomorrow. Stability, ethics and honesty are the most important motivational factors that produce the desired reaction of employees - dedication, customer care and innovation. These are, at the same time, traits that responsible companies make different. REFERENCES [1] J.Greenberg Reactions To Procedural Justice in Payment Distributions: Do the Means Justify the Ends?, Journal of Applied Psychology 72, 1987, pp.5561 [2] J.A.Collquitt, D.E.Colnon, M.J.Wesson, C.O.L.H.PorterandK.Y.Ng, Justice at the Millennium: A Meta analytic Review of 25 Years of Organizational JusticeResearch, Journal of Applied Psychology 86 (2001), pp.425445 [3] J.A.Colquitt On the Dimensionality of Organizational Justice: A Construct Validation of a Measure, Journal of Applied Psychology 86 (2001), pp.386400 [4] D.M.Schweigerand, A.S.De Nisi Communication With Employees Following a Merger: A Longitudinal Field Experiment, Academy of Management Journal 34 (1991), pp. 11013 [5] M.Feldmanand, M.Spratt Five Frogs on the Log, A CEOs Field Guide to Accelerating the Transition in Mergesrs, Acquisitions and GutWrenching Change (New York: Harper, 1999) [6] F.Casio Strategies for Responsible Restructuring,opening address at the National Man Power Summit, Singapore, October 2001 [7] Dragomir VoicuDan; Anghel Elena Roxana Social Responsibility Practices Regarding Facilities Granted to Employees and Consumer Protection in Selected EuropeanCompanies, source: Amfiteatru Economic, vol. 13, Issue 29, pp. 86103, Publishedfebr. 2011. [8] Randall Julian, Procter Stephen, Ambiguilty and ambivalence Senior managers accounts of organizational change in a restructured government department, Source: Journal of Organizational change management, Issue 6 pp. 686700, Published 2008. Receieved: June 2011. Accepted: June 2012. About the Author Slobodan Panić National Bank of Serbia, The Institute for Manufacturing Banknotes and Coins Topčider, Belgrade Email: slobodan.panic@nbs.rs / www.nbs.rs Slobodan Panić was born in Belgrade, on 19th October, 1964. He graduated at the Faculty of Economics in Belgrade, where he also received his M.A. degree with the thesis The Selection of Means of Economic Propaganda Strategy. His doctoral theses, with which he received his Ph.D. degree in January 2012 at the Faculty of Organizational Sciences, was titled Market transformation of stateowned companies in Serbia. Since 2003 he has been employed in the National Bank of Serbia The Institute for Manufacturing Banknotes and Coins at Topčider, as Director of Sales Board. Management Journal for Theory and Practice Management 2012/63 Marija Jankovic, MsC University Mediterranean, Faculty of business Montenegro Business School, Montenegro Integrated Marketing Communications and Brand Identity Development UDC: 005.53:658.626 ; 659.442 DOI: 10.7595/management.fon.2012.0015 Modern marketing paradigm is based on the increasing importance of the relational, environmental and socially responsible marketing concept. Modern marketing mix does not take into account only the satisfaction of consumer needs, but the realization of long-term communication with him. The concept of developing brand identity refers to the importance of different marketing tools for the purpose of creating, developing the brand and establishing stronger emotional connection with the consumer. The added value that makes the brand, is related to in addition to functional, its symbolic and emotional sides, in addition to the functional one. The concept of integrated marketing communications enables companies to use various to the target public as credible, consistent and clear. Keywords: integrated marketing communications, modern concept of marketing, brand identity, media communications. techniques and communication tools to communicate the message the brand has 1. Introduction Along with the new age of communications arrival, with the faster and faster information technology development, it has become necessary to improve marketing of communications and to coordinate newly appeared changes with them, by placing the information into the center of attention. Marketing communications maintain a two-way communicate with their consumers and thus they address the consumers needs. However, the entire previous concept of marketing is no more sufficient to satisfy all their needs. Contemporary paradigm of marketing relies on an integrated communication of marketing of all marketing mix elements. It demands more than a good product, a good price and availability. Integrated marketing communications develop the awareness of a brand, its service or the company, and that represents the prism through which public see us. Brand development contemporary acts, based on the market, technological and emotional factors, require an adequate use of an integrated marketing communications strategy, along with the systematization of marketing activities, with the intention to put the brand to a better position. New technologies lead to a greater fragmentation of media, which shows us that there is more and more marketing tools influence on the awareness of brand itself and its value. The goal of companies today is to influence the emotions of individuals and not of the groups. Therefore, the synergetic effect of all the communicational tools together comes to be very important. Integrated marketing communications include all the subjects participating in communication, analysis, planning, usage and control of communications, the media and promoting channels choice which will be focused on certain target groups, in order to achieve a greater competitiveness and effect of the brand. 2. Contemporary marketing mix concept and the brand identity development Neil Borden, a teacher at Business school at Harvard, is considered to be the founder of the marketing mix term. The term becomes popular after his speech before the American Marketing Association in 1953. According to him, marketing mix presented the sequence of ingredients which, as a culinary receipt, if been well mixed, would be able to make a product, capable to satisfy consumers needs and desires. The traditional concept of marketing mix is based on the combination of products, price, place (of distribution) Management Journal for Theory and Practice Management 2012/63 and promotion, in order to satisfy the consumers needs. New marketing paradigm relies on each marketing mix element communication, separately1. A product communicates through its quality and design with the aim of satisfying consumersž needs and exceeding their expectations. What is also important is its shape, package, colour and other features as well. The price communicates through compliance with the products quality. Consumers usually perceive the relation the lower price the worse quality and vice versa. Distribution sends information about the products availability and exclusiveness. As the most intensive and exploited element of the marketing mix, promotion uses its different shapes. Nowadays, inquiries, chat rooms, forums, friends, all of them rank among the most significant independent sources of receiving information, so that even promotional activities turn to this direction.2 It is not only the product of company that becomes important, but also the overall impression caused by the entire organization on the market. Corporative brand and its image are important. The corporative image is something every company strives for in order to achieve a long-lasting, positive image in the overall public viewing. Therefore, it is important to methodically and thoughtfully create marketing programs, to approach the activity of planning of all the organizational levels strategically, and all this with the intention to develop the identity of the brand. The identity of the brand is crucial in developing relations with the consumer as well as in creating consumers experiences along with the brand. Consumers experiences with a brand, the brand recognition on the market, recognizing the consumer in a brand, they all have an effect on strengthening the corporative identity value. Therefore, contemporary marketing conceptions emphasize the meaning of strategic analysis, not only of the consumer, but also of competition and internal analysis, the analysis of brand itself and the company that supports it. By using consumers analysis based on qualitative research, one gets the data about what kind of attitude and perception consumers have towards some brand. Competition analysis studies strengths and weaknesses of competitorsž, coming to a conclusion about which segment one should act in, and how. However, lets not forget the fact, that successful companies give their best in creating a recognizable brand today, just because of the more and more expressive competition and even greater differentiation. Lets just take into account the data that only 5% of buyers stick to a certain brand, and that 68% of them usually do not always buy the same products and brands. Even 73% of buyers use five or more different shopping channels (trade, online shopping, catalogues etc), and only one fourth of them do their regular shopping in one particular shop3. This data tell us about the extent to which companies should be prepared to change and have in mind the alternative branding strategies. The analysis of the company itself is most importantly highlighted this way, which includes not only resources and available means of the company, corporative brand analysis, strategies and tactics, but also the brands value analysis itself. (The Brand Finance company, a worldwide leader in the corporate brand value measuring market, measures the global and affirmed companys brands value4. The Coca-cola company s brand value is 32 millions of dollars. Compared to the companys value, the brands value is emphasized and it makes 32% of the total companys value. This information tells us about the increasing corporate brands importance for the company, being treated as a part of intangible assets). Therefore, contemporary marketing conception implies searching for alternative strategies which will increase the brands value. One of the prominent authors in alternative strategies field, David Atker, thinks that the identity of brand is a 12-dimension compound which he classifies into 4 perspectives5: 1. Brand as a product - the field of products, attributes, quality/value, aims, users, country of origin. 2. Brand as an organization - organizational attributes, local contrary to global ones; 1 Buha Vesna, Janičić Radmila, Filipović Vinka, Gligorijević Mirjana, Virtual reality in distance education and marketing communications, Management theory and practice management magazine, vol. 16, no. 60, pg. 51-59, 2011. 2 For example, the greatest auction websites employ and pay auction experts well for maintaining communication on their well visited forums, with an aim to offer their customers as many information as they can. 3 40.000 products are available in regular stores. 4 According to Brand Finance consulting company data, publishing a list of 500 best brands in the world every year, the best corporative brand is Google with 44 billion dollar value. The second place belongs to Microsoft -42 billion dollars, while the third place belongs to the chain of stores Wall-Mart, with 36,2 billion dollar value. This year the Apple company improved by 12 positions, and reached one of the top places of the list with the value of 29,5 billion dollars. The top of the list belongs to American companies, and 13 out of 20 most valuable companies are situated in the USA. The British company British petroleum suffered a greatest loss this year, which made it fall from the 51the to 104th position of the list. 5 Aaker D. A, Building Strong Brands, Simon & Schuster Adult Publishing Group, New York, 2006. Management Journal for Theory and Practice Management 2012/63 3. Brand as a person - brands personality, relation between brand and buyer; 4. Brand as a symbol - visual images/metaphors, brands heritage. 5. The same author imagines brands identity as a compound of a basic and expanded identity. The basic one represents the central and out-of-time basis of brand; it remains constant, even when brand is transferred to other markets and products. The expanded identity includes different elements of brands identity, organized in meaningful and coherent groups6. Brands identity represents the result of brand strategies, used by the company, resulting from the consumers perception. Therefore, contemporary marketing conception recognizes the basis of brand in maintaining the external and internal companys culture, emphasizing the communicative role of every single element of a marketing mix. By emphasizing the communicative role of every single marketing mix element, the first pointed out is the value for buyer, the availability, the price and the communication. In this domain, it is important to identify the value (which way can a company identify a chance for an offer of new values?); to create the value (the offer of value) and to deliver the value (value delivery in a more efficient way). Coca Cola, Microsoft, Intel, Singapore Airlines, Disney, CNN, Mercedes Benz, McDonalds, Ikea… are the examples of companies that have an emphasized communication with the target public and an excellent perception of their consumers. The value and strength of these brands has been developed with strategic pondering and clever management, over a long period and by analytical observing the market and consumers, along with permanent interaction. Mc Donalds has not defined its business as baking patties. The company held its image by forming a unique personality, actually by experiencing this personality with which these buyers are in active interaction. Shops cause a special visual impression, different flavour of the kitchen, relations of the employed, but also presents for kids, lottery, special package and the unique flavor7. A contemporary company needs to be aware of the fact that it is not enough just to find a buyer. It is necessary to keep him. Along with the clearly designed contemporary vision of brand, and with defined brand identity values which it wants to achieve along with sound organizational culture, the company can and certainly should manage it. The initial steps towards a successful corporate branding are the awareness of the company itself as an organization and a knowledge of the way in which public experience it. 3. Integrated marketing communications and brand development Marketing communication is the contemporary marketing key component, which includes all communicational activities between the organization and its target groups. Relying on the promotional and creative usage of all the elements, it tries to increase sales and improve the business result. To increase the brands value, companies use the integrated approach for informing their prospective and real consumers about their products, services and sales conditions. Integrated marketing communications represent strategic business processes that are used for brand planning, development, coordination and communication with the target public. Integrated marketing communications represent a way of observing the entire marketing process, from the aspects of the receiver. Successful companies have for a long time now recognized the fact that buyers control the market. They are the ones who determine what they want to see, feel or hear. Firstly, people act down-to-earth while shopping, so they will always give advantage to a product for which one would pay the same price as when buying the same product somewhere else, but along with some added value (ex. bonus, a free product, a larger quantity of the same product, etc). Consumers today demand comfortable shopping, shopping from their houses so that they would be able to see catalogues without any rush and, eventually, choose the things they would buy8. There is more and more shopping from home in Montenegro nowadays, and the tendency increases. Among the factors which caused forming the integrated marketing communications, technological factors are favoured along with the market ones. Market factors include: fiercer competition, investing into promotional activities growth, promotional budget redistribution, consumers behaviour changes. Among technological factors, the emphasized ones are: media fragmentation, interactive media appearance, the 6 Kotler Ph, Keller L., Marketing management, 12. edition, Datastatus, Belgrade, 2008, pg.279-280 7 http://www.poslovnaznanja.com/ 8 12% of total shopping is done from home in the USA. Management Journal for Theory and Practice Management 2012/63 possibility of creating of the consumers data base, partners and competitors. One of the most significant tools in marketing communication is advertizing and it is very often identified with the term communication. The fact is that creating a successful brand becomes more and more difficult. Companies increasingly invest into their promotional activities, while marketing budget requires to be planned thoughtfully. Out of 50% of the best British brands, only 18% were created in 1975. Total investments in advertizing out of the USA in 1999 and 2000 rose by 60%, reaching the estimated sum of 231 billion dollars9. These data indicate how difficult it is to keep the brand and how much marketing means maintenance requires. Nowadays, integrated marketing communications concept is adopted as a new branch of marketing development which incorporates all the marketing elements in communication. The local companys Trebjesa Brewery, Niksić example shows us a successful integrated marketing communication strategy appliance. The company, a market leader (with 91.8% of market share), communicates with more than three basic brands values. The company communicates with general public by using excellent promotional tools among which are: certificates on numerous quality rewards, lottery games system for the customers, promoting material for the caterers, distributive discounts (99% of catering and retail objects in Montenegro sell their products), highlighting the recognition of brand (bitterness of the brand, as mark of recognition), innovation (Nik Gold Brewery in Budva), social responsibility (the while drinking, I dont drive campaign, conducted on TV stations, billboards all around the country, with a great reception and a clear message sent). The brand communicates well with its price, it is available to the middle-level-income people. Tin packages are a bit more expensive than returnable packages, but that is an additional motive for consumers to keep their environment clean. With its sequence of sponsorships and lottery games (football championship sponsors) and with an impressive slogan Beer for friends and Always among friends, the company has accomplished its communicational aims and managed to create a strong link between the brand and its consumers. While observing new advertisements, we can notice younger population participating, (with which the company itself tries to do away with the traditions according to which only older population drinks beer and who the brand stuck to), in which way this company increasingly tries to include this category of the population into consuming their products. In all its propaganda, the brand has been presented as national, traditional, but still obeying the contemporary market demands (launching of their new products Nic Gold, Nic Cool, Nikšićko Tamno). The Trebjesa Brewery company strengthens its brand (which is definitely one of the most distinguishable ones in the region), along with its products and its good communicational tools as well. In an integrated marketing communication, it is important to have a clear and definite message that stresses the quality of the product, the companys advantage and its vision. In order to apply the integrated marketing concept of communication itself properly, the company has to accomplish the following: 1. Develop horizontal communications - enable the employed to accomplish their tasks in team work, share information among working groups, affect strengthening of the employees image throughout the corporate identity creating. 2. Integrate marketing activities, development, forming and coordinate usage of marketing program, process and activities; 3. Redefine the organizational structure, definition and usage of optimal organization as a whole, with an increased usage of the Internet and on-line business. Searching for the simpler way of management should be the imperative in organizing the communicational tools; 4. Intensify the usage of informational technology in communication with target publics and create a more complete data base of customers and stakeholders. Considering this segment, it is of high importance to have a good CRM concept (Customer Relationship Marketing Concept), which is an essential part of the company itself (investment into a reliable and powerful data base about the customers, including as much as 400 information about each buyer and representing a huge and demanding task of the company. This software is quite expensive, so that companies usually make partnerships for the aim of promoted automation of business processes10. ) 5. Develop specialized departments in an integrated marketing communication company; 6. Estimatie integrated marketing communication effects of the company. 7. Relying on clearly defined corporate and marketing communications, and directly communicating with the 9 Jobber, D. Fahy, Marketing Basis, Data Status, Belgrade, 2006. 10 Jankovic M., E-business in insurance companies,master thesis, Faculty of Economics, Podgorica,2009. Management Journal for Theory and Practice Management 2012/63 target publics, sociallyy responsible business, caring for and promoting sound attitudes, the company manages to form a good image and to maintain its brand. On the other hand, due to great media fragmentation, the buyer chooses the material for promotion. All this causes the need for marketing communications integration. It is not enough to simply promote the product, it is also necessary to send a clear message about the brand itself along with the coordinated activities. Therefore, the strategic approach to the integration of marketing communications takes an important place in building the identity of the brand. 4. The synergetic effect of marketing communications The modern marketing business philosophy emphasizes the organization and implementation of integrated communications, but not separate ones, as was previously the case. To what extent the marketing communications will be implemented depends primarily on the organization, types of products / services, the business strategy, and within it, the defined strategy of corporate and marketing communications. The company analyzes the past effects of communications, carries out an analysis of their performance, listens to the response of satisfied customers, analyzes and follows the concrete communication strategies, controlling its own ones and improving its business. The effect of unifying marketing communications (synergy) has always proved in practice to be greater than the effect of the action of each individual communication. The field of direct sales is becoming increasingly competitive, with the fragmentation of mass market, differentiated product range, complexity of marketing communications and electronic communications improvement. By integrating communications, a consistent and clear message is sent to the target audience, which ultimately increases brand awareness, directly affecting its image. More than 9% of the economic activity in the United States is generated through direct marketing. Although it does not require high costs, it is an expensive form of communication, if used for one-time sales. Forms of direct marketing are often related to the media system, that is, they use advertising messages. Primarily they are: postal, print and electronic media. The advantages of this type of marketing are reflected in the personalization (creating one to one marketing), controllability ( media control, cross-selling (creating the base of potential products, which customers may possibly buy), the possibility of testing all the variables that determine the success of a promotional campaign, such as: customer mailing lists (mailing lists), mail size, contents, format of advertising message, shape and color of letters, creating a reliable database of customers, developing long-term and trusting relationships with customers, possibility of integrating with other forms of marketing communications. The technology has contributed significantly to the development of telemarketing. By using the video phones, this type of communication will experience a real breakthrough and partially reduce the cost of other forms of sales. Good staff training (telesalers, who are mostly women), is as important as observing the time at which the customers should be contacted. In this case, we are talking about outbound marketing. The inbound type of direct marketing initiates the calls from customers, if they were previously advertised about the existence of a brand. It also initiates a possibility of complaints, delays in delivery, etc. In America, the penalties for those companies that do not have the phone for customer complaints are being introduced, which is considered completely justified and stimulating in order to provide a better service. Strong controllability and flexibility are the main characteristics of direct marketing and as such they influence the establishment of long-term relationships with customers and strengthening of the brand. On the other hand, more complete databases are created which provide information about the preferences, habits and affinities of customers, with the aim of building the new or enhancing the existing brands, which will fully meet the needs of the market. Direct mail, as a popular form of media, directly affecting target markets enables the achievement of flexibility and greater personalization of potential and actual customers by sending letters, flyers, (some companies send audio and video recordings by mail). In the UK, mailing costs less than a pound, while a visit to prospective buyers may cost up to 50 pounds. This form of direct marketing is characterized by a high level of distrust, with a tendency to decline. The standard direct mail includes: an envelope, a letter, a brochure, a response means for and a reply form. While the letter communicates with the customer and sends him a call for action, a brochure details the elements of the product and is sent when you need to tell the story. The form for the response is a desirable form for sales growth, as it includes a response form or order form, with the number of free phone numbers or other communication instruction. The form for sending the reply is a return envelope which is sent to the recipient free of charge. Free postage displayed on the envelope significantly increases the response rate. Management Journal for Theory and Practice Management 2012/63 Kiosk marketing is a form of integrated marketing communications which is increasingly used by companies nowadays. Machines and automatic machines for ordering products / services, which are delivered to the buyer at the given address, are placed at airports and in shops. The Florsheim Shoes company has machines in several of its stores, where the customer indicates the type of shoes they want (formal, sports), together with the size. The picture of Florsheim shoes that meet the criteria of the customer appears on the screen. If certain shoes are not available at the store, the customer can call and order by phone, giving a credit card number and address to which the product should be delivered. This form of marketing significantly improves good communication with the customer and faith in the brand, distinguishing it in the eyes of customers from similar brands. Catalogue sales have an important place in communication with upper- and middle-class people, who do not have enough time to purchase outside the home. About 71% of Americans do shopping from home, spending about $ 150 a month. The comparative factor is emphasized here, since the customers are given a possibility to examine the catalogue in more detail and make a comparison with the on-line offer of other providers. This type of communication has a strong influence on brand building, along with on-line ordering. On the other hand, production of catalogues is expensive and requires constant updating. Internet marketing enables companies to use the Internet in order to create brand awareness, make the customers interested, provide information, influence the attitudes of customers, and support communication goals11. Electronic marketing uses one or more electronic media (resources, tools, techniques, technologies, systems) to achieve a measurable response and / or transaction. In addition to telephone, radio, television and other traditional electronic media, modern electronic media are increasingly used in emarketing, such as: cable television, mobile phones, computers, the Internet and other network technologies. As brand development is a slow and expensive process, Internet marketing is a way to inform customers about the characteristics of the brand, enable on-line, simpler and faster purchase, while on the other hand, it offers a possibility of discussing, chatting between customers and a public display of discontent with the offer of the company. Communities of on-line customers are becoming more powerful and their views have now become one of decisive purchasing factors. The creation of electronic forums is nowadays a very important tool of communication that companies must take into account. Toyota car owners who use America Online, can maintain on-line discussions and exchange experiences. Nestlé is committed to conducting open, ongoing communication with target groups, potential investors and other stakeholders. The guiding principle of this policy is the relationship with target groups where Nestle treats all target groups in the same situations in such a manner that all sensitive information is published and disclosed in time so as to be available to everybody in a transparent manner. The company has a strong Internet marketing strategy, based on the placement and provision of good information ( and ). All information is quickly found on the websites of the company immediately after its publication, for example, the financial report on business operations. The web site is proactive and has an option of giving answers to frequently asked questions, providing all necessary information that may interest the investors, including areas such as the environment and so on. The company has developed a proactive file of all the press conferences that have taken place in the past, so it has enabled good transparency of all information. The well positioned part of the site with information relating to future events provides a good insight into all reports of interest on the dates and types of press conferences. Accreditation of journalists has been solved in a way that the part of the Nestlé site covering the media, has offered an option to journalists to apply and obtain accreditation for certain events very quickly. Nestle is actively involved in promoting the events, results, decisions which are important for the company by buying media space on radio and TV stations, where the information important for the company, as well as for the audience, is presented to the public in the form of unobtrusive programs. Good communication in the form of advertising activities, TV, radio, press and others, used through the marketing mix, has made a good basis for the Nestle company to establish a good and proactive relationship with the advertisers.This is a great example of excellent communication with the target audience through the Internet channels, which leads to accepting the brand as serious and loyal. Public relations emphasize the importance of marketing communications in order to create public support for a companys activities, through the promotion of understanding and goodwill. Positive publicity is expected as a result of planning efforts concerning ther creation and maintenance. In terms of strengthening corporate identity and company image, publicity serves to help consumers understand the quality of the product. The modern marketing paradigm emphasizes the growing importance of publicity and public 11 Jovanovski Igor, , Management Journal of management theory and practice, vol. 15, br. 56, p. 78-83, 2010. Management Journal for Theory and Practice Management 2012/63 relations, more than advertising. However, failing to use them will hinder an effective achievement of the goal. Highly selective communicating tool are public relations, too. Public relations contribute to the integrated marketing communications in several ways: creating excitement in the market, before the advent of advertising, where there is no news about the product, providing additional value to consumers of the service sector, etc.. Sponsorships are a means of communication with consumers, whose aim is to create brand awareness. According to Jobber, sponsorship is a business relationship between those who provide funds, resources or services and the individual, event or organization, which in turn offer some rights and association that can be used for promotional purposes. There is a wide range of activities that can be sponsored, ranging from sports, artistic, to socially beneficial, and entities such as teams, people or events themselves: competitions, fairs, exhibitions and so on. The Red Bull company has an interesting strategy when it comes to sponsoring various festivals, sporting events, concerts, entertainment etc. Besides the brilliant slogan Red Bull gives you wings, in all its sponsored events the company offers free degustations, believing that public opinion makers have a major impact on the growth of purchases. In the classic Red Bull events, such as Racing karts without motor and Red Bull flying day events involve participants in developing marketing initiatives (various methods and techniques of drinking, etc..). Sponsoring the event, including participants in the degustations and competitions, the company has achieved a closer link of prospective and actual consumers with the brand. Sales promotion is commonly used by companies in order to achieve short-term effects on the budget increase. Price reduction is one of the most common ways of improving sales, which is preferrable in case of the brands with low market share, while in case of large corporate brands it can sometimes cause damage to the company. In order to improve sales, companies use various techniques with the aim of encouraging new purchase, including: promotional samples, promotional coupons, bonus packs of products, special promotions of products / services, promotions at point of sale of products / services, contests, special events. The techniques to improve sales lead not only to the current commitment to a brand, but seek to reinforce a longerterm consumer demand for products / services. How and which way the company will operate in the market depends on many factors, among which the following stand out: size of the market, communication goals, behaviour, preferences and habits of customers, competitive strategy and the allocated marketing budget. Promotional sales tools are samples (miniature packaging products delivered through direct sale or through a print media) suitable for product testing, promotional coupons (a form of promotional media, which are delivered to a retail store to replace part of the product / service, or acquire the product at a discounted price) special occasion sales (excellent manner of enhancing the end-of-season sales); bonus packages (frequent stimulating techniques to foster trade, increasingly used by sellers, the most common form of which is two for the price of one), corporate promotional resources - are all corporate promotional funds that are branded by the company title (diaries, lighters, key chains, flags, umbrellas, pens, branded clothing manufacture, calendars, etc.); special cards for special clients-discounts as gratitude for loyalty in long-term purchases, or business cooperation; sweepstakes and contests - obtaining the products / services by participating in the auction or by luck. Stimulating sales promotion techniques are not only meant for the consumers, but also for intermediaries and distribution channels, that are just as important for the entire chain of value creation. According to Marc Gobe, the author of Emotional Branding - the emotional branding is a new paradigm of connecting with people, by which the brand means the promise and the fulfillment of that promise, and branding means giving the power of the brand to specific products or services. Brands promote love and intimacy with the consumer. They address him in the first person singular, and strive to be living beings friends. Apple iMac is another word for sensuality, in addition to a gigh quality and sophisticated design. The investment of corporate resources and efforts in bringing about real emotions in the consumer is the best investment that one company can make. More and more companies nowadays realize that new opportunities are not based on reducing costs and increasing profits, but on creating innovative models and understanding that intangible things become more valuable than tangible ones. On the fast-food restaurant market, Mc Donalds carefully builds its brand based on a special visual experience, different kitchen flavours, employee relations, gifts for children, contests, special packaging, unique flavors, arousing positive emotions with their distinctive symbol, and building the image of a socially-responsible company (Ronald McDonald House Charity Funds). The importance of branding today lies in the brand experience through all five senses. Emotional branding is based on four pillars, namely: Familiarity with the consumer, with significant changes in the structure of todays consumer, to which companies have to pay attention (generation changes, an increasing impact of women in the society); Sensory experience - experience the brand through all five senses (Singapore Airlines is a company that uses a sophisticated Asian scent in its aircraft, which is a sign of recognition of the company); Management Journal for Theory and Practice Management 2012/63 Imagination - imaginative approach to product design, packaging, sales, advertisement and Internet sites allows for the brand to break through the set limit and win the hearts of consumers in a new, fresh manner; Vision - the most important factor in long-term success of a brand. Brands are going through a natural life cycle. Therefore, to create and preserve their success in todays market, they must be positioned so that they can always be re-devised. (The vision of Walt Disneys-We will be the happiest place on Earth). The sinergy of integrated marketing communications tools usually has much better effects in comparison with that they produce when they act separately. It is therefore important from the aspect of a previously conducted strategic analysis (internal, competitive analysis and consumer), that a marketing and corporate strategy should be carefully designed, in order that a long-term brand recognition and image are ensured by improving the reputation of the company. 5. The role of media in developing brand identity A special form of integrated communications, with which a brand identity is developed, belongs to media and advertizing. Besides the mentioned advantages of electronic communication with the stakeholders, the importance of advertizing in media and its influence on the brand identity should be pointed out. The functional character of the product transmits the brands value on one hand while on the other hand, media represent the means of advertising. The sense of brand existence is created via media and with the aim to inform and affect the customer. Messages one desires to advertize are not only emitted via walls, billboards, boards, newspapers stands, shops, roofs, transport means, cinemas, shopping malls, etc. Advertising represents a form of paid and impersonal communication about organizations, products/services and all these by a particular sponsor. The impersonal form of communication implies that there is no more possibility that information be returned by the person who receives it. In a one year period, more than 200 companies in the USA spend more than 100 million dollars on advertising. Advertising messages are now not only passed on via print, electronic or interactive media. They can be spread through: walls, posters, billboards, kiosks, shops, roofs, means of transport, internal transport stations, cinemas, shopping malls, etc. A survey conducted this year by Microsoft has confirmed that advertising is more effective if implemented through print media than on television. Although consumer habits have changed with the development of electronic media, the print media occupy a special and important position in promoting products. There are different types of ads, ranging from black and white or full colour ones, based on the text and illustrations, to inserting a variety of leaflets, brochures and similar materials and their distribution with newspapers (in Montenegro there is a strong tendency towards this type of communication and sales growth). Studies show that every pound spent on advertising in print media in Great Britain brings five times the value or income of five pounds. (One pound investment in television advertising brings £2.15, and £3.44 is gained if the advertising is carried out on the web). Microsoft has conducted a survey among 26 leading British retail chains, of which 24 are among the 100 largest advertisers in the UK. The study recommends advertisers to increase the budget for print media and the web by 10%, with the same percentage reduction in investments in TV ads. In Britain, in 2009, revenues from TV advertising for the first time in history were less than the budget spent on the web, which turned $3.6 billion12. The research results confirm a previous research of the British Journal Science Brand which shows that advertising in print media gets double the value of the investment in other media. The research results show that Internet advertising will reach the figure of $62 billion in the following five years13. In advertising, the role of magazines and newspapers differs from that of the electronic media, because it allows the presentation of detailed information whose processing speed is determined by consumers themselves. Selectivity is one of the advantages of magazines, i.e. their selective ability to appeal to target audiences. Prestige is an important feature of this advertising method because that is how consumers perceive it. The costs of advertising in magazines are relatively high, and disadvantages of such advertising are reflected in insufficient frequency compared to other media, as well as in large competition. Newspapers are the largest advertising medium, particularly attractive to local advertisers for promotion of products/services at the local level. The most important feature of this advertising method is a large geographical coverage, and, on the other hand, its disadvantage is reflected in brevity. Advertising in newspapers is not cheap, and in order to inform consumers 12 http://www.asmedi.org/Newsletter/Jun%20Nr129.html 13 http://www.blic.rs/Vesti/Svet/193552/Stampani-mediji-superiorniji Management Journal for Theory and Practice Management 2012/63 about the existence of the brand, companies usually lease space for a few days, which, in turn, means higher costs. To meet the increasing demands of consumers, local newspapers are available on the Internet. National news web portals compete with each other in design and style, to attract people of all ages. The wide penetration of the market allows advertisers to send their message to all market segments. Advertising in electronic media includes advertising on television, film, CD and video-tapes. Television is a multimedia service, which is, as a means of advertising, today most effectively used in appealing to consumers. This means advertising can quickly cover a wide audience, with high integration and reaching a large number of market segments. Being an expensive medium, it has been exposed to high competition, especially from the moment when cable TV appeared. Television is criticized as a selective medium. However, a certain level of selectivity is possible because of the different composition of the audience, resulting from the programme schedule, broadcast time and geographical coverage of the program. As a medium, it is mostly used as a direct incentive for sales activities. An average advertising 30 seconds spot on the largest four TV networks in the US, in peak time, is seen by nearly 10 million households. The cost per one thousand households is $14. Cable television enables addressing to special groups which are relevant to the brand, through specialized channels for a specific field of interest (sports, nature, music, crime movies and series, etc.). Over the past decade, the impact of advertising through the mass media has dramatically declined (due to video recorders, remote control, cable TV, satellite dish, the Internet, lifestyle). Only 19% of viewers said they watched commercials during a TV programme. For that reason, particular attention is paid to timing and advertising period of products through this medium. Most companies will use the Internet for advertising (the most commonly used format for advertising is e-mail), which is one of the reasons of the impacts of global crisis. In Great Britain it has become the biggest medium for advertising in the last three years. Radio is an often ignored medium in branding. It is characterized by high frequency, selectivity, human voice and coverage, whereas its biggest disadvantages are its incapability to retain the attention of the listeners and the absence of pictures. It is important to select a radio station where the company wants to advertise, due to knowing the demographic structure and preferences of its listeners. One of the most recognized commercials in the world of brand advertising is the example of Absolut vodka. The advertising strategy was focused on two unique aspects of the product: name Absolut and its distinctive bottle shape. The campaign was one of the most successful in the world and turned the name Absolut into a synonym for vodka. While sales of all other spirits have fallen by over 40% in last 15 years, Absolut vodka sales have increased 10 times and various Absolut brands together have a 70% market share. Interactive media take an important position in the field of branding. The most interactive media are the Internet and mobile telephony. In addition to the advantages of the Internet technology, it is necessary to mention banners, as the most widely used form of advertising, rectangular-shaped, situated at a specific part of a web site. The service of posting a banner is paid to the advertiser. By clicking on the banner on the webpage of the company, a product or event is opened, and thus prospective customers can be reached. A banner may be posted in the form of flash banners, containing audio or video animations, as it would be more attractive to prospective customers and thus increase the number of visits. Mobile phones provide a great opportunity for communication with users. Montenegro is a leader in the region with the highest frequency of use of mobile devices. For that reason, this form of advertising is interesting to local advertisers. Although mobile marketing is a novelty, the telecommunications industry requires attention. SMS (Short Message System) represents a system of short messages, very popular among users. This type of advertising is desirable for the promotion of commodities offered by a company, discounts, activities and information about new brands. The new technology provides conditions for the development of additional services via MMS (Multimedia Messaging System), messages that contain both pictures and sound. The most important service of new technology is access to the Internet via the mobile phone and exchanging messages from one system to another. Through mobile devices, a product/service may be ordered and easily paid for. Mobile devices allow us to purchase a product / service with simple way of payment today. In this segment, companies must respond by developing interactive sites, thus enhancing the cooperation of e-consumers. This is an important medium for branding, some recent research has shown, stressing that mobile telephony penetration of 10% may affect the economic growth of 0.59%. Developing media, new technologies, encourages companies to think in new directions of advertising, with the aim of making a more comprehensive approach to the customer and attempting to improve the position and development of the brand thus also maintaining the company image as a positive, serious and socially-responsible company. Management Journal for Theory and Practice Management 2012/63 Conslusion The main purpose of integrated marketing communications is a long-term quality of communication with the companys customers. The major characteristics of integrated marketing communications are strategic, two-way and targeting specific consumer needs. Employees at all levels of management must be aware of the many legal and ethical problems that today surround marketing communication. Companies need to carefully and proactively work to make their communications with customers and stakeholders open, honest and pleasant. In saturated markets, the excessive offer of product / service requires companies to pay constant attention to strategic analysis, both internal and those obtained from the market. Creating a brand and its positioning is a complex task for one company. From creating the identity of brand elements (name, logo, symbol, color, brand, etc..), through the perception in the eyes of consumers, to the use of various tools of marketing communication, brand management becomes a serious management of the brand values. In order to develop a brand identity, companies use synergetic effects of marketing and corporate communications, which act together to achieve greater effects on brand value than if they acted individually. The key element is related to the creation of messages and target audience to whom the messages would be sent. Additionaly, it is very important to choose a method of placing messages in order to receive feedbacks, with a clear message that the brand is recognized properly. The role of the media is extremely important in creating the identity, especially in these days and in the age where advanced technologies (especially the Internet and mobile technology) begin to play a more prominent role in modern marketing. Emotional branding and the brand experience through all five senses is a new marketing paradigm. Modern brand identity determines the overall organization, with emphasis on corporate social responsibility. Therefore, the integrated marketing communication is undoubtedly important in creating the reputation of the company, in order to preserve customer loyalty and achieve long-term relationships with company stakeholders. REFERENCES [1] First D. Aaker, Building Strong Brands, Simon and Schuster Adult Publishing Group, New York, 2006. [2] Second V. Filipovic, Stankovic M. Kostic, Marketing Management, FON, Belgrade, 2011. [3] Third V. Filipovic, Stankovic M. Kostic, Public Relations, FON, Belgrade, 2011. [4] Filipovic V., R. Janicic, Strategic marketing, FON, Belgrade, 2010. [5] Gregory J., The Best of Branding - Best Practices of Corporate Branding, McGraw Hill, New York, 2004. [6] Jobber, D., Fahy, J., Fundamentals of Marketing, Data Status, Belgrade, 2006. [7] Larry P., Strategic Integrated Marketing Communication, Elsevier Inc.., Canada, 2008. [8] K. Keller, Best practices in branding - lessons from the worlds strongest brands, 1.edition, Mass Media Intenational, 2008. [9] Kotler Ph.., K. Keller, Marketing Management, 12th Edition, Prentice Hall, New York, 2008. [10] Ognjanov G., Integrated Marketing Communications, CID, Faculty of Economics, Belgrade, 2009. [11] Robyn Blakeman, Integrated Marketing Communication, McMillan, Canada, 2009. [12] Terence A. S., An advertising promotion and other aspects of integrated marketing communications, Prentice Hall, New York, 2008. [13] Kenneth C., Integrated Advertising, promotion and marketing communication, Prentice Hall, New York, 2009. [14] David P., Integrated marketing communication, Elsevier Inc.., Canada, 2006. Receieved: October 2011. Accepted: June 2012. About the Author Marija Jankovic, MsC University Mediterranean, Faculty of business Montenegro Business School, Podgorica email: marija.jankovic.mbs@gmail.com Marija Jankovic, Mr. Sci - PhD candidate at the Faculty of Economics, University of Montenegro, in Podgorica. Master, two-year studies, completed in the Faculty of Economics (course: International Economics, Finance and Business), and four-year academic studies of economics at the same University, as one of the best students. She has received numerous scholarships during her studies. She attended school abroad. She is hired as assistant on five subjects, on both courses, at Faculty of business studies, University of Mediterranean. 2012/64 Management Journal for Theory and Practice Management 2012/64 Nataša Petrović1, Dragoslav Slović2, Marko Ćirović3 1, 2, 3 University of Belgrade Faculty of Organizational Sciences Environmental Performance Indicators as Guidelines Towards Sustainability UDC: 005.62:502 ; 005:502.131.1 DOI: 10.7595/management.fon.2012.0026 International organizations, governments, non-governmental organizations, and corporations pay an increasing attention to sustainable development and sustainable environmental management. Consequently, a large number of environmental methods have been developed in order to achieve sustainable issues. This paper explores environmental performance indicators as a good method for achieving and measuring sustainability on the local, national, regional and global levels. Keywords: sustainable development, sustainability, environmental performance, environmental performance indicators, environmental performance reporting. 1. Introduction The industry faces specific challenges with respect to economic and environmental sustainability. In addition to having environmentally sensitive processes, the business structure of the industry must develop and implement sustainable practices. Sustainability was defined by the International Union for Conservation of Nature in a 1969 mandate as achieving economic growth and industrialization without environmental damage (Keiner, 2006). In part due to some highly visible ecological disasters, the concept gained in force in 1983 when the United Nations published a report of the World Commission of Environment and Development, (called the Brundtland Report), where sustainability was redefined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs (Hart, 1997; Daly, 1990; WCED, 1987). The use of this definition has led many to see sustainable development as having a major focus on intergenerational equity. Although the brief definition does not explicitly mention the environment or development, the subsequent paragraphs, while rarely quoted, are clear. On development, the report states that human needs are basic and essential; that economic growth, but also equity to share resources with the poor is required to sustain them; and that equity is encouraged by effective citizen participation. On the environment, the report is also clear: The concept of sustainable development does imply limits. These limits are not absolute; they rather represent limitations imposed by the present state of technology and social organization of environmental resources and by the ability of the biosphere to absorb the effects of human activities. Further on, sustainable development has become a popular management philosophy in many countries throughout the world. Its popularity can be partially attributed to reports of global climate change and the declining stability of global ecosystems. However, its initiation can also be attributed to the efforts of the United Nations (UN), which have encouraged all countries to develop their own national sustainable development strategies. Today, countries on all five continents have developed and are in the process of implementing national sustainable development strategies. 2. The need for sustainability The phenomenon of sustainable development or sustainability has been the main popular catalyst for changes in government policies and regulatory frameworks, which has dramatically changed the roles and behaviour of nations. Management Journal for Theory and Practice Management 2012/64 There is a lack of a concrete definition of sustainability because there is not, and should not be, any single definition of sustainability (Tickell, 1997; Bell & Morse, 1999; Tickell et al., 2006). Satterthwaite suggests that sustainable development is simply development i.e. activities to fulfill the (basic) needs of current populations both human and animal, that will be sustained in such a manner that population can meet their needs in a way that will not restrict or ruin the carrying capacities in economic, social, environmental, and organizational systems (Satterthwaite, 1999). The core ideas representing the sustainable development term, aggregated, are as follows (World Bank, 2003; Cooper & Vargas, 2004; Stead et al., 2004): Environmental and economic integration. Ensuring that economic development and environmental pro tection are integrated in planning and implementation simultaneously. Environmental protection. A commitment to reducing pollution and environmental degradation and with a more efficient use of resources. Equity. A commitment to meeting at least the basic needs of the poor of the present generation (as well as equity between generations). Futurity. An explicit concern about the impact of current activities on future generations. Quality of life. A recognition that human beings are concerned not only with income growth, but also with health support and satisfaction to live in their societies. Participation. The recognition that sustainable development requires the involvement of all stakeholders in a society. Figure 1 presents the popular and adopted definitions of sustainable development, particularly in relation to the environmental context, that focus on the existing ecological capital or stocks or assets that will survive in the long term and will not transfer environmental costs to future generations. ... development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (WCED, 1987) ... the capacity of a system to maintain output at a level approximately equal to or greater than its historical average, with the approximation determined by the historical level of variability. (Lynam & Herdt, 1989) ... development that improves the quality of human life while living within the carrying capacity of supporting ecosystems. (IUCN, 1991) Nature is robust, within limits, it is morally imperative to preserve nature enough not to reduce choice of options for the future. (O Riordan & Rayner, 1991) The sustainability of natural ecosystems can be defined as the dynamic equilibrium between natural inputs and outputs. (Fresco & Krooneberg, 1992) Development that maintains and improves the long term condition of environment and peoples quality of life. (Barrow, 1997) Figure 1: Definitions of Sustainability These definitions are prioritized more on time rather than on interest in spatial scale (i.e. local, national, regional, or global levels). In some protocols, development with a consideration of different hierarchical levels is recognized. For instance, Agenda 21 closely emphasizes activities, participation, cooperation, and governance among both local authorities and the general public, and that is how Local Agenda 21 has been popularly initiated (UNCED, 1992). Management Journal for Theory and Practice Management 2012/64 Moreover, in the last 20 years new global awareness that demands switching to sustainability has risen - instead of emphasizing quantity and a mass production, now emphasis is given to quality. Additional value is not knowledge-based anymore but rather resource-based. Innovation is not reflected in finding new ways of increasing existing capacities for exploiting the nature anymore but in finding alternative materials which can be used in the production process. One of priorities for immediate actions in the strategies for sustainable development of every company is sustainable consumption and production. These strategies define the method in which sustainability is carried out, through the following promotion measures: Better products and services, which reduce the environmental impacts from the use of energy, resources, or hazardous substances; Cleaner, more efficient production processes, which strengthen competitiveness; and shifts in consump tion towards goods and services with lower impacts. The sustainable consumption issue was raised for the first time as one of the key issues of sustainability at UN Conference on Environment and Development in Rio in 1992. Two decades since, different experts from this area agree that progress in tracking consumer habits and thinking the ways of changing them is too slow. Sustainable consumption emphasizes that quality of consumption must increase, both of todays generation and the future ones. This concept demands optimization of consumption subject, in order to sustain in time utilization and quality of resources, hence environment as well (Emil, 1994). It is understandable that responsible businesses are at the heart of society. Companies that understand their links with the communities they operate in, and their impact on the environment, are most likely to prosper in the long-term. At the same time, the interests of stakeholders in firms environmental performance are at an all-time high. There is an increasing recognition that good environmental performance makes good business sense: companies that measure, manage and communicate their environmental performance are inherently well placed. They understand how to improve their processes, reduce their costs, comply with regulatory requirements and stakeholder environmental expectations and take advantage of new green market opportunities. 3. About environmental performance indicators There is an increasing demand for company reporting that is stricter and more focused on the key impacts on the business and on the environment. It takes reporting of environmental performance, which will benefit in two ways: It will provide management information to help exploit the cost savings that good environmental perform ance usually brings; It gives the chance to identify what is significant in firms environmental performance (Becker, 2008). Environmental performance indicators are one of possible tools for such a quantifiable measurement and information on how to understand and assess the environmental performance. Businesses would implement meaningful activities on environmental conservation if they could select appropriate environmental performance indicators. Environmental performance indicators would facilitate environmental communication with stakeholders if they were included in environmental reporting. Through the application of environmental performance indicators, assessment and measurement of environmental conditions a set of data is obtained that are to be used to inform and assist governments, developers, planners, and decision makers in tracking their performance towards environmental sustainability (Bell & Morse, 1999; Bell & Morse, 2003). Environmental performance indicators (EPIs) have been progressively developed over the past ten years and used by international organizations such as the United Nations, the World Bank, and the World Resource Institution WBCSD - World Business Council for Sustainable Development and GRI - Global Reporting Initiative (OECD, 1993; Neimanis & Kerr, 1996). Environmental performance indicators have been identified as essential tools for environmental assessment and measurement to improve local livelihood and overall national development and sustainable development. EPIs cover a broad spectrum and are applicable at local, national and regional levels. The users of EPIs can easily access, directly select, and promptly apply a set of indicators to measure national environmental performance. In practice, EPIs tend to assist decision making more on the global and national levels. Management Journal for Theory and Practice Management 2012/64 Environmental ISO (The International Organization for Standardization) series have been widely used in companies that apply environmental management, with an outcome being environmental reporting. They particularly work on environmental performance evaluation and set worldwide standards that require commitment to a continuous improvement of environmental performance in order to meet environmental targets and performance criteria. ISO 14031 and ISO 14032 are the extension series of ISO 14000. ISO 14031 provides guidance on the selection and implementation of indicators to evaluate an organizational environmental performance, with the support of ISO 14032 which provides examples from real organizations to illustrate the use of the guidance in the ISO 14031 ISO (Environmental Performance Evaluation Guidelines: Specifies the purposes of environmental performance evaluation, preparation of an evaluation plan, data collection, review of results this was regulated as JIS Q 14031 on October 20, 2000). Although the guideline defines the concept and procedure of selection of environmental performance indicators, it does not cover the development of actual indicators. 4. Characteristicss and criteria of environmental performance indicators Environmental performance indicators can be signs, statistics, measures, or parameters that are developed and used in informing and measuring the changes of environmental components, status, stresses and trends. These indicators can influence the management actions leading towards environmental management and sustainable development. They need to be developed to provide solid bases for decision making, and to contribute to self-regulating, integrated environments and development systems. EPIs should not only inform us whether or not what we are doing is leading to sustainability, but they must also be developed to synthesize scientific and technical data into fruitful information for decision makers to take policy decision on present and future issues. EPIs could be characterized as follows (Morrison & Pearce, 2000; Bossel, 2001): Indicators must represent all important concerns and cover all relevant aspects. It means that indicators must look systematically at the interaction between systems and their environment. Indicators have to be clearly defined, reproducible, unambiguous, easy to understand, practical, and sensitive to the changes that they are intended to measure. Indicators must reflect the interests of different stakeholders. Thus, the process of finding an indicator set must be participatory to ensure that it encompasses the visions and values of the community or region or other geographical scales for which it has been developed. Finally, they should be able to show trends over time and guide policies and decisions at all levels of the society and all its institutions. According to the International Network for Environmental Compliance and Enforcement (2012), environmental indicators were defined to address the issues of: Implementation Indicators. Governments are required to take steps to implement commitments they have made in international agreements and national policies in the form of laws or programs. Enforcement Indicators. Once a government has adopted environmental laws they need to enforce them. Compliance Indicators. Once the laws are in place and are being enforced, other indicators are needed to measure the level of compliance. 5. Types of environmental performance indicators In organizational operations, the basis of environmental performance indicators can be divided into two types of measures: The first is the environmental management indicators undertaken within an organization management system. They include internal information on the efforts the organization makes to affect its environmental impact, but not information on the environmental performance. For example, some of these indicators are the number of environmental audits, percentage of employees with environmental training, and the number of environmentally friendly suppliers. The second, the environmental condition indicators are external indicators describing the direct strains and impacts on the environment, for example, indicators of water emissions on waterways in the vicinity of a production site. Condition indicators are usually applied by public institutions. They are national indicators that can be used by organizations to aid in the selection of their performance indicators (Jasch, 2000). Management Journal for Theory and Practice Management 2012/64 6. Themes of environmental performance indicators Environmental indicators include ecological, biological, chemical, and physical measurements and indices that attempt to characterize or identify critical and complex components of an ecosystem. Table 1 illustrates the aggregation of standard environmental indicators categorized according to the environmental themes and sub-themes (Kurtz et al., 2001). Environmental Themes Sub-Themes Environmental Indicators Table 1: Environmental themes indicators Atmosphere   Land  Oceans, Seas, and Coasts   Freshwater   Biodiversity Waste  Performance and Management Climate change Ozone layer depletion Air quality Agriculture Forests Desertification Urbanization Coastal zone Fisheries  Water Quantity  Water Quality  Ecosystem Species Material  Policy Emissions of direct and indirect greenhouse gases Consumption of ozone depleting substances Ambient concentration of air pollutants in urban areas and industrial estates Number of vehicles Arable and permanent crop land area Use of fertilizers Use of agricultural pesticides Forest area as a percentage of land area Wood harvesting intensity Land affected by desertification Area of urban formal and informal settlements Algae concentration in coastal waters Percentage of total population living in coastal areas Number of IUCN red list species* with habitats in areas affected by operations Annual catch by major species Annual withdrawal of ground and surface water as a percentage of total annual renewable quantity of water available from the sources (breakdown by region) Total water use and its impact on water sources and related ecosystems Total recycling and reuse of water BOD** in water bodies Concentration of faucal coli form in freshwater Water sources and ecosystems affected by discharges of water and runoff Waste discharge to water Total amount of waste by type and treated methods Area of selected key ecosystems Location and size of land owned, leased, or managed in biodiversity-rich habitats Impacts of activities and operations on protected and sensitive areas Business units currently operating or planning operations in or around protected or sensitive areas Protected area as a percentage of total area Abundance of selected key species Objectives, programs, and targets for protecting and restoring native species in degraded areas Percentage of materials used that are wastes (processed or unprocessed) from sources external to the reporting organization National, sub-national, regional, and local environmental policies and regulations Incidents of applicable international declarations/conventions/treaties associated with environmental issues * IUCN red list species - is widely recognized as the most comprehensive, objective global approach for evaluating the conservation status of plant and animal species. ** BOD - Biochemical oxygen demand Management Journal for Theory and Practice Management 2012/64 7. Managing and reporting on environmental performance Managing and reporting on environmental performance can lead to significant business benefits as well as benefits for the environment: Cost savings and productivity gains. Businesses can save costs and increase efficiency through reducing and managing the resource use. Typical areas where cost savings are identified include the use of raw materials and supplies, reductions in waste, water and energy use and transport, travel, and packaging. By reducing environmental impacts, such as waste to landfill, businesses can significantly reduce any associated taxes or levies, or avoid the cost of compliance altogether. Responsible management of risks and liabilities can lead to reduced insurance costs. Improved sales. Businesses can benefit from improved reputation amongst their customers (and potential customers) by reporting on relevant environmental issues in a clear and transparent way. Good reporting improves customer confidence. Informing customers of efforts to improve organizations environmental performance can lead to increased confidence in products and services. Preferred supplier status. Large organizations increasingly require that suppliers and contractors should submit environmental performance information to satisfy the expectations of their own shareholders. Reporting on environmental information can make a more attractive supplier than competitors. Increased attractiveness to the investment community. Investors, financial analysts and brokers are now asking questions about the sustainability of business operations. Reporting on environmental matters provides a good indication of what measures an organization is taking to reduce risks and develop opportunities. Product and service innovation. Measuring and managing environmental impacts drives and supports innovation in product and service development, helping to secure new markets and customers or safeguard the existing ones. Employee recruitment. Clear reporting of an organizations efforts to manage its environmental performance helps attract high-caliber employees as good environmental reputation and performance can be an important factor in an employees choice of employer. License to operate. Managing environmental impacts and minimizing the organizations impact on the environment can reduce the exposure to fines. It can improve relations with regulators and help ensure the company maintains its license to operate by providing assurances about compliance with environmental legislation and conformity with other relevant laws and regulations. Furthermore, it should be emphasized that environmental impact is defined as the degree to which an organizations business processes, activities and operations positively or negatively affect the natural environment. The environmental impact is the consequence of the organizations actions in relation to the quality and cleanliness of air, water and soil and, more generally, to the short-term and long-term health of the planet Earths global ecosystem. Also, environmental impact can be defined as every change to the environment. 8. Key drivers of environmental performance reporting Key drivers of environmental performance reporting are: Regulations. Governments at most levels have increased the pressure on corporations to measure the impact of their operations on the environment. Legislation is becoming more innovative and is covering an ever wider range of activities. Customers. Public opinion and consumer preferences are a more abstract but powerful factor that exerts considerable influence on companies, particularly those that are consumer-oriented. This factor has led firms to provide much more information about the products they produce, the suppliers who produce them, and the products environmental impact from creation to disposal. Peer pressure from other organizations. Each organization is part of an industry, with the peer pressures and alliances that go along with it. Matching industry standards for sustainability reporting can be a factor; particularly for those who operate in the same supply chain and have environmental or social standards they expect of their partners. There is a growing trend for large organizations to request sustainability information from their suppliers as part of their evaluation criteria. Organizations themselves. Organizations, as public citizens, feel their own pressure to create a credible sustainability policy, with performance measures to back it up - but with an eye on the bottom line as well. Increasingly, stakeholders are demanding explicit sustainability - reporting strategies and a proof of the results. Balancing financial growth, corporate responsibility, shareholder returns and stakeholder demands also leads to an evaluation of the trade-off between short-term gains and long-term profits. Management Journal for Theory and Practice Management 2012/64 Investors. Increasingly, investors want to know that companies they have targeted have responsible, sustainable, long-term business approaches. Institutional investors and stock exchange CEOs, for example, have moved to request increased sustainability reporting from listed companies, and environmental, social and corporate governance indices have been established, such as the Dow Jones Sustainability Index. The Carbon Disclosure Project was developed in response to investor demand for a system for firms to measure and report greenhouse gas emissions and climate change strategies as a tool to set reduction targets and also set individual goals. 9. Tools for measuring environmental performance Selecting meaningful and effective tools for measuring environmental performance is becoming increasingly important due to the increasing costs of environmental operations; market, regulatory and public pressures… Many metrics are already in use. These include lagging indicators, which measure outputs such as pounds of pollutants emitted or discharged; leading indicators, which are in-process measures of performance; and environmental condition indicators, which measure the direct effect of an activity on the environment. Each type of indicator has its own strengths and weaknesses, and different audiences; most organizations use a mixture of them. Metrics can measure the business value of environmental programs or progress as well as the environmental performance of business operations. This can be particularly effective in demonstrating the value of environmental efforts to management. It can also provide data with which business units can design more efficient processes, decreasing material usage and environmental impacts while at the same time increasing yield and profitability. The last several years have seen the development of several trends in environmental metrics. Some of these trends are: the globalization of metrics, increasing emphasis on sustainability in its environmental context (the efficient use of resources) and ef forts to develop sustainability metrics, increasing use of environmental management systems as benchmarks of environmental performance and emphasis on the integration of environmental performance with business performance with the goal of reducing costs and material losses, and improving yield, market share, and profitability. Environmental performance indicators are essential tools for tracking environmental progress, supporting policy evaluation and informing the public. Usually, three categories of environmental indicators are defined for evaluating and reporting the environmental performance of an organization (Defra, 2012; EC EUROPA, 2012): Operational Performance Indicators (OPIs): o Input indicators:  Materials,  Energy,  Services supporting the organizations operation,  Products supporting the organizations operation. o Physical facilities and equipment indicators:  Design,  Installation,  Operation,  Maintenance,  Land use,  Transport. o Output indicators:  Products provided by the organization,  Services provided by the organization,  Waste,  Emissions. Management Performance Indicators (MPIs): o System indicators:  Implementation of policies and programs,  Conformance, Management Journal for Theory and Practice Management 2012/64  Financial performance,  Employee involvement. o Functional area indicators:  Administration and planning,  Purchasing and investments,  Health and safety,  Community relations. Environmental Condition Indicators (ECIs): o Environmental media indicators:  Air,  Water,  Land. o Bio and anthroposphere indicators:  Flora,  Fauna,  Humans,  Aesthetics, heritage and culture. Operational performance indicators (OPIs) concentrate on the aspects associated with the organizations operations including activities, products or services and can cover such topics as emissions, product and raw material recycling, fuel consumption of vehicle fleet, or energy usage. Management Performance Indicators (MPIs) concentrate on the efforts of management to provide the infrastructure for environmental management to succeed and can, among others, cover environmental programs, objectives and targets, training, incentive schemes, audit frequency, site inspections, administration and community relations. Environmental Condition Indicators (ECIs) give information on the quality of the environment surrounding the organization or the local, regional or global state of the environment. Examples include the water quality of a nearby lake, the regional air quality, concentrations of greenhouse gases or the concentration of certain pollutants in the soil. While they may be quite wide-ranging, they can be used to focus the attention of the organization on the management of the environmental aspects associated with significant environmental impacts. Conclusion Since the United Nations Conference on Environment and Development in 1992, sustainability has become a widely shared goal. Although information can provide an improved basis for decision making and gauging progress, accountability is possible only if goals and measures of progress are explicit. Appropriately formulated indicators can provide such measures, enhancing the diagnosis of the situation and making progress or stalemate obvious to all. Environmental performance indicators provide businesses with a tool for measurement. They are quantifiable metrics that reflect the environmental performance of a business in the context of achieving its wider goals and objectives. They also help businesses implement strategies by linking various levels of an organization (business units, departments and individuals) with clearly defined targets and benchmarks. The impact of environmental matters on organizational performance is increasing and will continue to do so. For example, poor management of energy, natural resources or waste can affect current performance; failure to plan for a future in which environmental factors are likely to be significant may put the long-term value and future of a business at risk. Therefore, governments expect that businesses will need to use environmental performance indicators to adequately capture the link between environmental and financial performances (UNCED, 1992). The green and sustainability trends are manifested in the pressure from consumers, shareholders, employees, partners and governments (regulations) put upon companies to embrace more sustainable and green practices. Many companies resorted to greenwashing instead of actually creating green innovations by marketing their product in a way that suggests green practices. Management Journal for Theory and Practice Management 2012/64 However, there are many companies that have taken the sustainability trend seriously and are doing so profitably. Organizations that give back to the community, whether through employees volunteering their time or through charitable donations are often considered to be socially sustainable. 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Strategies for Evaluating Indicators Based on Guidelines from the Environmental Protection Agencys Office of Research and Development Ecological Indicators 1, pp. 49-60. [19] Lynam, J. K., Herdt, R. W. (1989). Senses and sustainability: sustainability as an objective in international agriculture research. Agric. Econ., 3: pp. 381-398. [20] Morrison, J.A., Pearce, R. (2000). Interrelationships between economic policy and agrienvironmental indicators: an investigative framework with examples from South Africa. Ecological Economics, 34 (3), pp. 363-377. [21] Neimanis, V., Kerr, A. (1996). Developing national environmental indicators. In: Berger, A.R. and Iams, W.J. (eds.) Geoindicators: Assessing rapid environmental change in earth systems, Balkema, Rotterdam, pp. 369-376. Management Journal for Theory and Practice Management 2012/64 [22] OECD (1993). OECD core set of indicators for environmental performance reviews: A synthesis report by the group on the state of the environment. Environment monographs 83, OECD/GD 179, Paris. [23] O Riordan, T., Rayner, S. (1991). Risk Management for Global Environmental Change. Global Envi ronmental Change, 1(2), pp. 91-108. [24] Satterthwaite, D. (1999). Sustainable cities of cities that contribute to sustainable development? in Sat terthwaite, D. (ed.) The Earthscan Reader in Sustainable Cities, London, Earthscan: pp. 80-106. [25] Stead, W. E., Stead, J. G., Starik, M. (2004). Sustainable strategic management. New York and London, Sharpe. [26] Tickell, C. (1997). The human species: A suicidal success in Goudie. A. (ed.) The Human Impact Reader: Readings and Case Studies, Oxford, Blackwell: pp.450-460. [27] UNCED (1992). Agenda 21: Programme of Action for Sustainable Development. Rio Declaration on En vironment and Development, N.Y.: United Nations. [28] WCED - World Commission on Environment and Development (1987). Our Common Future - The Bruntdland Report. Oxford University Press. [29] World Bank (2003). Sustainable development in a dynamic world: Transforming institutions, growth, and quality of life. Washington and New York, Oxford University Press. Receieved: August 2012. Accepted: September 2012. About the Author Nataša Petrović University of Belgrade Faculty of Organizational Sciences petrovicn@fon.bg.ac.rs Nataša Petrović graduated from the Faculty of Organizational Sciencesin 1991, got her masters degree in 1999, and a Ph. D. in 2002. She currently works as an associate professor at the University of Belgrade - Faculty of Organizational Sciences. The area of her scientific research includes: environmental management, sustainable development, environmental education, eco marketing, design for environment, public participation in environmental protection. Dragoslav Slović University of Belgrade Faculty of Organizational Sciences slovic.dragoslav@fon.bg.ac.rs Dragoslav R. Slovic is an assistant professor at the University of Belgrade - Faculty of Organizational Sciences. He graduated and received his masters and PhD degrees in industrial engineering and management at the University of Belgrade - Faculty of Organizational Sciences. The key areas of his scientific interest are performance and compensation management and production efficiency enhancement by the application of continuous processes improvement, Lean and Kaizen approach and fundamentals of industrial engineering. Marko Ćirović University of Belgrade Faculty of Organizational Sciences marko.cirovic@fon.bg.ac.rs Marko Ćirović works as a teaching associate at the Faculty of Organizational Sciences, University of Belgrade. He graduated from this Faculty in management in 2010, and got his masters degree in 2012. He is currently enrolled in doctorial studies at the Faculty of Organizational Sciences. His area of interest includes: environmental management, eco-marketing, environmental education and debate as a method of education. 2012/64 Management Journal for Theory and Practice Management 2012/64 Adi Katz Department of Industrial Engineering and Management SCE College of Engineering, Israel Enhancing Computer Mediated Communication by Applying Contextualization to Email Design: a Case Study UDC: 005.53:[007:004.451.6 ; 005.94:004.9) DOI: 10.7595/management.fon.2012.0021 XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia This paper deals with communicational breakdowns and misunderstandings in computer mediated communication (CMC) and about ways to recover from them or to prevent them. The paper describes a case study of CMC conducted in a company named Artigiani. We observed communication and conducted content analysis of e-mail messages, focusing on message exchanges between customer service representatives (CSRs) and their contacts. In addition to task management difficulties, we identified communication breakdowns that result from differences between perspectives, and from the lack of contextual information, mainly technical background and professional jargon at the customers side. We examined possible ways to enhance CMC and accordingly designed a prototype for an e-mail user interface that emphasizes a communicational strategy called contextualization as a central component for obtaining effective communication and for supporting effective management and control of organizational activities, especially handling orders, price quoting, and monitoring the supply and installation of products. Designers of systems that support distant communication and collaboration may find practical ideas to apply. Keywords: Computer-Mediated-Communication (CMC), Computer Supported Cooperative Work (CSCW), email design, Communication Breakdowns, Miscommunication, Contextualization, Mutual Understanding 1. Introduction Computer supported cooperative work (CSCW) and computer mediated communication (CMC) are most crucial in the activities of todays organizations. Organizations need to achieve goals that one person cannot accomplish alone, and knowledge that is collected by individuals should be reserved for the general use of the organizational community. Now, workers need more than ever to share knowledge, and are involved in joint activities that require the support of information systems. Communication is to a large extent in the form of computer mediated cooperation, and computerized applications ascribed as groupware (group support systems that include shared environments, whiteboards, electronic group calendars, chat rooms and more) facilitate communication and improve coordination. The overall success of organizations is certainly dependent on CMC that need to be designed to achieve a high level of mutual understanding (hereafter MU) and minimal communication breakdowns. Although e-mail is the most widespread mode of CMC at work, e-mail client software is poorly suited to support the collaborative quality of the organizational tasks, which results in a pernicious problem of people suffering from email overload (Bellotti et al., 2005; Whittaker, 2005). Users get frustrated with their e-mail because they feel overwhelmed by the high volume of messages. It seems that current structures within email clients prove inadequate, especially for high-volume e-mail users. There is need for reinventing the email client, moving it from the current electronic analog of physical mail to a tool that allows users to manage all of their digital communications. New visualizations of the information contained within e-mail inboxes are a key piece of the solution (Rohall, 2001). Management Journal for Theory and Practice Management 2012/64 The Problem of Communication Breakdowns Communication problems are potentially present in organizational processes, which involve cooperative work between workers coming from different occupational backgrounds. The differences in language and knowledge eventually create a situation of distance between individuals who need to communicate in order to complete their tasks successfully. Therefore, the organizational process could be facing a problem of miscommunication that might lead to low performance and therefore to its failure. On the one hand, collaboration between workers who come from diverse functional backgrounds is essential in organizations (Fischer, 1981). On the other hand, communication processes that involve individuals who come from different organizational occupations, domains or methodologies and hold different kinds of knowledge, impose certain demands and requirements on the form of messages exchanged between them (Sommerville et al, 1996). Research has shown that communication is more efficient when people share greater amounts of common ground and when integration between individual member contributions is achieved. However, achieving integration will be more challenging if group members start from different practical realities - e.g. come from different functional backgrounds. Common to all situations requiring the communication of contextual information is the likelihood of being misunderstood because of information the speaker possesses but the listener does not. Such situations are more likely to occur in computer mediated team work than in face-to-face teams (Cramton, 2001). Contextualization Current communication theories suggest that communication breakdowns may be reduced by contextualization, i.e., an adaptive communication behavior of providing the explicit addition of contextual information to a core message to ensure effective communication. Communicators contextualize in order to overcome communication difficulties arising from perspective differences. The lack of contextualization has been named as one of the most frequently occurring problems in communication between distributed workers (Cramton, 2001; Hinds & Bailey, 2003). The decision to contextualize involves trade-offs between the benefit of gaining better communication and the costs in terms of the cognitive resources it requires. The cognitive effort required for the act of contextualization is particularly heavy on the e-mail author in CMC, because information transfer, especially complex information, is less efficient than in richer media (Kraut et al., 2002). Although the degree of context required in an e-mail message depends on the recipient, it is the sender (author) who must determine the context that the message provides, as well as its depth. Hence, the adaptive behavior of contextualization is at the senders discretion. A sender who senses a problem in communication has motivation to contextualize in order to gain mutual understanding. It has been reported that the impacts of contextualization on MU and on performance are contingent on whether communicators share or differ in their perspectives: contextualization increases MU and performance in cases of different perspectives, but it does not increase MU and even decreases performance in situations of shared perspectives. In other words, contextualization is only effective when needed and counterproductive when not needed (Katz & Teeni, 2007). However, message senders are not always effective communicators, and are not always aware of the difference in perspectives with their recipients and therefore may use contextualization inappropriately. In order to contextualize appropriately, a speaker needs to be engaged in an additional communication behavior, perspective taking, which is metaphorically depicted as the act of stepping into the shoes of the addressee. In task-oriented situations, ones ability to orientate to the perspective of the other person enables him to assimilate and integrate information using the others frame of reference and leads to higher MU (Tan, 1992). Perspective taking is a cognitive skill that varies among individuals and requires cognitive effort (Dickey et al., 2007). In addition, people tend to rely on their own perspective when communicating because it requires less cognitive effort (Horton & Keysar, 1996; Keysar et al., 2000), or overestimate the degree to which others perspectives mirror their own (Krauss & Fussell, 1991). It was found that cognitive load has a detrimental influence, as it disrupts monitoring and adjustments and leads to rather standard messages that are not adapted to the perspectives of the addressees (Ro(cid:0)nagel, 2000; Horton & Keysar, 1996). In customer service situations, customer service representative (CSR) may use fixed, predefined messages to present a generic corporate image to those outside the organization (Adria & Chowdhury, 2004). This makes it difficult for strangers to develop shared understanding of context, which is crucial for communica Management Journal for Theory and Practice Management 2012/64 tion effectiveness (Dickey et al., 2007). In addition, customers are sometimes unable to take a CSRs perspective because the CSR refers to things outside the customers experiences. In such cases, meetings can break down and end without resolution. Contextualization in e-mail Communication In our work presented above we discussed CMC that stresses the need to reinvent e-mail, and put our focus on contextualization as a central component for enhancing effective communication. We concentrate on two existing features from previous work, embedded links and visualization of message threads and added additional features (introduced in the design section). Contextualizing with embedded links Knowledge organization deals with issues of how to best store knowledge so that it can be retrieved when relevant. Users need to get to the right knowledge at the right time, and must be aware of the relevant knowledge that is available to them at each task. The idea of tying knowledge to action is aroused from the fact that workers do not have the time to actively seek organizational knowledge, and therefore it would be far more effective if the knowledge could find them (Schwartz & Teeni, 2000). KMail, a knowledge-enhanced e-mail designed to enhance collaboration, is a remarkable example of a tool that ties organizational memories (OM) effectively to organizational actions using contextualization (Schwartz, & Teeni, 2000). KMail is a URL-based OM that enables the linking of knowledge to ongoing communication to achieve successful communication by helping users to appropriately adapt to communication by assessing perspective differences. Contextualization with message threads (conversational trees) Collaborative tasks are not discrete but iterative. As a task evolves, users have to combine task related information in incoming messages with prior relevant information. Prior messages are important because they contain context that is critical for interpreting the current message (Whittaker, 2005). Messages should be viewed as elements of a conversation rather than as independent or solitary. An e-mail conversation, also known as a thread, is typically defined as the tree of related messages that arises from the use of the reply operation (Venolia & Neustaedter, 2003). This interconnectedness of e-mails is not fully exploited in conventional e-mail clients. Conversation threads in e-mail allow users to see a broader context of the messages they are reading, remind users that a conversation is in progress, record the state of a discussion, and collate related messages automatically (Kerr, 2003). A full visualization of a message thread clearly displays a message along with all its previous related messages and therefore provides better context for understanding the meaning of the current message. Therefore we treat threading as a form of contextualization, since it adds layers of information about the communications history. Threading is useful for both recipient and author. At the recipients side, contextual information reduces the likelihood of misunderstanding the meaning of messages. For both, contextualization by thread visualization reduces cognitive demands on memory by eliminating the need to recall past issues and other conversational elements. At the authors side, threading serves as reference of the common ground achieved in the conversation until the current point, and allows him to expend less effort in building the current message. The author assumes that the recipient already knows or has access to previous information and therefore can choose not to contextualize, sending only the core message and drawing the recipients attention to relevant context whenever necessary. This allows a relatively parsimonious (economical) communication pattern, requiring less message exchanges and enabling the creation of shorter messages, because most of the information needed is already presented in the thread. Innovative ideas that go beyond the limited context preservation by threading widely used in e-mail programs can be found in the literature. Examples are: an advanced email prototype with a complex branching reply tree (Venolia & Neustaedter, 2003), an integrated e-mail client with visual separators in the Inbox list using pivoting and threads (Kerr, 2003, Kerr & Wilcox, 2004), and a combination of a tree based model with a timeline model to produce useful tracking of conversations (Rohall et al., 2001). Management Journal for Theory and Practice Management 2012/64 2. Artigiani as a case study of CMC difficulties The current study is about designing effective CMC to enhance good communication. Our objectives were to first evaluate communication processes between CSRs and their business clients, with a special attention to communication breakdowns to find the types of contextual information that help resolve breakdowns and miscommunications, and then find possible ways to enhance effective CMC and finally implement our ideas in the design of an e-mail prototype. We examined communication processes in an Israeli company named Artigiani, as a case study of an organization with massive email message exchanges. Artigiani specializes in designing and manufacturing affixing (metal fixtures or accessories such as handles, hooks and hangers). Case Study Steps To evaluate the existing communication in Artigiani, we conducted the following activities in a time range of about two months: observations; one-to-one interviews; and collection and text analysis of 60 e-mail messages. Consequently, we roughly distinguish between two purposes for contextualizing: Task management: Contextualization for improving the workers ability to effectively manage his organi zational activities and tasks, and to improve related decision making. Communication: Contextualization for improving CMC, i.e. achieving a high level of MU and minimal oc currences of communication breakdowns. Findings The first meeting between a customer service representative (CSR) and a customer is face to face; the following communication is usually via e-mail. Although CSRs are in contact with customers and business clients via telephone and face to face encounters, there is a massive activity of e-mail message exchange. E-mail is the preferable communication channel to handle various organizational activities (e.g. negotiating with suppliers, ordering products, quoting, scheduling the supply and installation of products, etc.), especially because of its ability to document and maintain written proofs. We were interested in the exchanging of messages between CSRs and customers, and also with professionals such as carpenters, contractors, architects, interior designers, and suppliers. As well as profitability of businesses depends on maintaining current customers and attracting new ones; customer service is an important part of every business organization. Customers are satisfied when they receive personal and prompt service. The likelihood of a business to lose customers due to bad experiences with CSR reinforces the goal of achieving good communication between them. Although they are important, this study is not about developing and refining effective customer service skills, but is about designing effective CMC to enhance good communication between CSRs and business clients. We now briefly describe the difficulties of task management and communication in Artigiani. CSRs Task Management Difficulties CSRs in Artigiani spend much time in managing of pending tasks. They are involved in various parallel activities related to customer service and handling orders, such as management and documenting of customer files, responding to telephone calls, monitoring orders, negotiating with suppliers, quoting, scheduling the supply and installation of products and so forth. CSRs are in great pressure to respond quickly to e-mails, and the activity of managing their tasks is experienced as a stressful one, because of the high volume of incoming messages. They are constantly involved in deciding about priorities of activities, and in addition they tend to lose important items when they need them (such as previous message exchanges, and documents that they wish to attach to outgoing messages). They are required to manage ongoing activities over time and need to handle numerous schedules and reminders. The time range for an order is thirty days in average, and during this range communication regarding an order or client is not continuous. However, CSRs need to quickly associate items, events, files or messages to them. This makes the task of managing orders and treating clients and customers cognitively demanding. For the sake of tracking and managing orders, information is filed into physical office folders. The process of collecting and filing is inconvenient, tedious, and requires the investment of time and consistency. Thus, workers tend to neglect this activity and as a result information can be lost. In addition to arranging information in physical folders, CSRs constantly arrange files in their metaphorical desktop folders on their com Management Journal for Theory and Practice Management 2012/64 puters and in their e-mail folders. Mentally retrieving the location of needed information is cognitively demanding on the long term memory, and constantly searching for information in e-mail folders is tedious and time consuming. It is clear that CSRs in Artigiani have problems of effectively maintaining and using various types of knowledge, thus the value of the information is lost. CSRs do not have a clear visualization of all the parties involved in a conversation, nor do they have easy access to the contents exchange in the conversation by each member. Clearly, difficulties to reach information in a timely manner affect work quality, especially the quality of customer service. Because e-mail communication is a-synchronic in its nature and not continuous, it is difficult to keep track of orders and to effectively handle them. An e-mail system that supports easy access to contextual information items that are related to pending tasks can be of great help for managing the overwhelming high volume of incoming messages and activities. Communication Difficulties Observations, interviews and text analysis of e-mail messages revealed that the main activities of CSRs are handling orders facing customers and suppliers, stock checking, price quoting, and answering technical questions. We discovered that the vast majority of miscommunications occur in communication between CSRs and customers, and that the main source of communication breakdowns are the differences between the perspectives of CSRs and customers, derived especially from the lack of technical background and jargon at the customers side. While communication between CSRs and professional contacts such as designers and carpenters is more parsimonious, CSRs need to include a mass of contextual information in the message when communicating with customers. Often, it is necessary for CSRs to communicate with customers via telephone over cases in which communicators fail to overcome breakdowns that emerge in emails exchanges. In some cases, communication failures were so severe, that they damaged the ability to effectively treat an order, and the whole deal was canceled by the customer. Such cases undoubtedly harm the organizations profitability. Text analysis of email messages demonstrates CSRs tendency to use egocentric and standard expressions when communicating with clients. Keeping in mind that contextualization requires cognitive effort and is time consuming, we claim that the aforementioned cognitive overload of CSRs influences their hesitation to contextualize. 3. Design In this section we present our prototype of an e-mail user interface designed for CSRs in Artigiani. Our e-mail design reflects an attempt to follow an avenue for reinventing e-mail, which was suggested after a survey of a vast body of work accumulated over the past 3 decades in the e-mail literature. The survey retrieved three perspectives that need to be assembled simultaneously to support activities in the design of future e-mail clients: individual, communicative, and socio-organizational (Ducheneaut & Watts, 2005). We will refer to the three perspectives when we describe our e-mail features. Contextualization must rely on organizational knowledge for two components: 1) Knowledge to provide additional context layers around action; 2) Knowledge to identify conditions in which to contextualize messages (Schwartz & Teeni, 2000). Accordingly, our e-mail design roughly distinguishes between two purposes for contextualizing, supporting task management and enhancing effective communication: Task management: Contextualization for improving the users ability to effectively manage his organiza tional activities and tasks. We dealt with design issues of how to best implement the idea of tying knowledge to action; in other words, how to best organize and display knowledge so users can easily get to the right knowledge at the right time at each task. This purpose is closely tied to the Ducheneaut & Watts (2005) individual level reflected in the e-mail as file cabinet metaphor, in which e-mail design extends human information processing capabilities. Effective communication: Contextualization for achieving a high level of MU and minimal communica tion breakdowns. We dealt with two questions regarding contextualization: Management Journal for Theory and Practice Management 2012/64 When? We designed an e-mail prototype that would help users to identify the conditions in which con textualization is necessary and encourage them to do so. What? We designed an e-mail prototype that would help senders to identify what types of information is required for the receivers to understand the message. Metaphorically, senders should be able to easily build the contextual bridge above the cognitive distance between them and the receivers. We present two screens (Figures 1-2) that show the main features that are designed to achieve effective task management and effective communication. For convenience, we separated between these two different purposes, but it is important to note that some features support both. Task management: knowledge to provide the additional context layers around action Figure 1 presents a screen layout from our e-mail prototype with an incoming message from a customer. The layout is divided into four panes: 1) incoming messages (inbox list); 2) message content; 3) OM related to the message; 4) thread view. When a message is selected in the inbox list (pane 1), different contextual information of that message appears in the three remaining panes. Incoming messages (inbox list) The incoming message pane resembles current e-mail programs. Messages are separated according to arrival dates, and basic information of each message is displayed (arrival time, sender and subject). Three icons may appear next to messages: an icon of a message thread for messages that belong to a message thread, the familiar attachment icon, and flag icon that expresses urgency. The latter meets the need for effectively managing pending tasks and task prioritizing. The system parses the text of incoming messages and flags selected messages as most urgent, when identifying urgent expressions and punctuation marks (e.g. critical, urgent, ASAP, quickly, etc.) or when identifying content that is considered high priority (e.g. activities such as orders). Flags and priorities are considered as a design component of the communicative level in the Ducheneaut & Watts (2005) framework. Organizational memory (OM) for tying context layers to action Our prototype borrowed the main feature of kMail, which is the creation of OM views. The idea of tying OM to e-mail messages resembles the contextual data design component, related to the socio-organizational level in the Ducheneaut & Watts (2005) framework. We elaborated Schwartz and Teenis (2000) idea of associating OM views to outgoing messages, by proposing OM views also for incoming messages. For example, in Figure1, an incoming message from a customer was parsed, and the words item number 126 were associated with a memory item of a figure of a door handle, and therefore were hyperlinked to an OM view. Implementing the idea of tying knowledge to action, this addition helps CSRs manage the numerous pending tasks which arrive with incoming messages. Though we differentiated between effective task management and effective communication, OM supports both. In addition to helping CSRs to better handle their tasks, the probability for MU is raised by the fact that incoming messages are associated by hyperlinks to the relevant information needed for the CSR to understand their meaning. Message threads Thread visualizations are associated with the communicative level in the Ducheneaut & Watts (2005) framework. Following previous work, we designed graphical representation of message threads to highlight all parties involved in a conversation, and to have an easy access to the contents exchange in the conversation by each member. We used different colors for different professional groups (CSRs, carpenters, contractors, architects, interior designers, suppliers and customers). To produce a useful tracking of conversations, our threads are located on a timetable, following the work of Rohall et al. (2001). In figure 1, at the 4th pane, for each message on a thread we inserted a button to access the senders profile for more details. This encourages the user to take the contacts perspective before replying or making relevant decisions. In designing message threading, we adopted from a list of key qualities characteristics that are most relevant and useful for effectively managing CMC and organizational activities at Artigiani: chronology, relationships, compactness and attribute highlighting (Kerr, 2003). Management Journal for Theory and Practice Management 2012/64 The preliminary phase of text analysis of a messages helped us expose important attributes that are extremely useful for quickly finding particular messages or assessing the state of a thread. Users can effectively locate all messages that were sent by a particular person; sent on a particular time range (day, week, month); or ascribed to a certain milestone (distinguished stages such as orderings, production and supply). Organizing information by categorization of the main milestones of customer care in Artigiani is an important feature for lowering the cognitive complexity sensed by CSRs. We used colours to group and distinguish between certain messages, contacts, and milestones, for a quick and simple identification. Using identical colors to group elements helps reduce cognitive load. Highlighting attributes by coloring nodes and locating threads on a timetable spare the need to click on messages on a thread to see who communicated, when, and at what stage. Figure 1: Contextualization with Embedded Links and Threading Visualization Effective communication: knowledge to identify when and what to contextualize As aforementioned, contextualization is only effective when needed and counterproductive when not needed. We are also aware of the fact that message senders are not always effective communicators and are not always aware of the difference in perspectives with their recipients. Therefore, our prototype includes two main elements that are aimed to ensure appropriate contextualization. Organizational memory (OM) for effective communication Whenever a CSR composes a message, the system will retrieve all the relevant information from the OM and will offer hypertext links to the OM for the CSR to confirm validate or modify before message transmission. At the recipients side, the message will arrive with hyperlinks to relevant OM views. As kMail, there is use of knowledge about senders and recepeints to match their profiles and estimate their distance. Embedded links in outgoing messages are automatically created based on the distance detected. When calculations of sender-receiver distance find similar profiles, MU can be achieved with a relatively economical message exchange, with few embedded links, if any. Embedded links to OM not only encourage contextualization when necessary, but also helps users contextualize what is necessary. Profile Cards Profiles can offer in-depth information about each individual an e-mail user is corresponding with, to enrich the understanding of whom they are dealing with (Tyler & Tang, 2003). We implemented profile cards to minimize the distance between communicators. An example is shown in figure 2. Users can create con Management Journal for Theory and Practice Management 2012/64 textual information about contacts, and then use it as an important reference in order to dispel ambiguity around their perspectives when composing messages to them. Unlike embedded links, which are system generated and therefore formed automatically, profiles enable the user to actively seek for relevant information about contacts, and then to consciously decide on what to contextualize to whom. In addition to basic customer information, profile cards contain the customers categories of interest. The CSR can use this information effectively as common ground for a smooth and efficient communication, and for providing customer-centered service; for example, he may identify the preferred design style of the customer and offer him complementary products. Also, profile card contains attachments to all the files that were gathered for this contact. Transition between views presenting different layers of context Users can quickly transfer between different layers of context by manipulating the display characteristics. As shown in Figure 2, a user can choose between a graphical or textual display of information, switch resolutions of detail from a daily to an annual view, through weekly and monthly views, and also choose to present a specific time range. A user can request to see more drill down presentations to access documents that belong to different milestones (for example, regarding an order, CSRs can see all documents that were saved: quotes, orders, manager approvals, manufacturing, etc.) Sorting documents by themes that are derived from critical organizational activities (milestones), is in line with the notion of Thematic components that connect communicative and socio-organizational levels (Ducheneaut & Bellotti, 2003; Ducheneaut & Watts, 2005) and with Workflow systems that are appropriate for organizational tasks that have a predictable structure (Whittaker, 2005). Users can transfer between views that display threads of e-mail conversations, specific messages and e-mail attachments. In Figure 2, a CSR chose to display all messages exchanged with a customer on a thread, highlighted by the milestones they belong to. Figure 2: Contextualization of Contacts (Customers) Management Journal for Theory and Practice Management 2012/64 Conclusion We focused on gaining a better sense of the various contexts relevant for communication and task management to design an effective e-mail prototype. Our first objectives were to evaluate communication processes between CSRs and their business clients, and to find the types of contextual information that help resolve breakdowns and miscommunications. Then, we examined possible ways to enhance effective CMC and finally we implemented our ideas in the design of an email prototype. Since we are interested in receiving initial feedback from potential users prior to establishing a working prototype, our prototype is in an initial stage and therefore not yet a functional one. An additional limitation to our prototype derived from the former is that we did not implement a threading algorithm (such as the algorithms existing in Netscape Mail; Fischer & Moody, 2001; Kerr, 2003) or message parsing for creating embedded links (Schwartz & Teeni, 2000). We presented the prototype to potential users and received very positive feedback. CSRs stated that the e-mail is most relevant for their daily work and were particularly excited about presenting conversations visually and about the embedded links to OM. They expressed their enthusiasm about the ability to do things faster and more conveniently and also about the attractiveness of the design. Our ideas are not limited only to the realm of customer service, but can be implemented to tasks and e-mail exchanges of other organizational roles and areas, such as purchasing and manufacturing. Our e-mail prototype follows an avenue for reinventing e-mail, which was derived from a vast body of work accumulated over the past 30 years in e-mail literature (Ducheneaut & Watts, 2005). Prototype features that we implemented, such as profiles, thread visualization and embedded links to OM connect components from three levels at which e-mail operates: the individual; communicative; and socioorganizational, respectively. We believe that a multi level approach will support a variety of organizational tasks performed using e-mail. REFERENCES [1] Adria, M. & Chowdhury, S. (2004). Centralization as a design consideration for the management of call centers, Information & Management, 41(4), 497-507. [2] Bellotti, V., Ducheneaut, N., Howard, M., Smith, I., & Grin-ter, R.E. (2005). Quality versus quantity: E-mailcentric task management and its relation with overload. Human-Computer Interaction, 20(1/2), 89-138. [3] Cramton, C. D. (2001). The mutual knowledge problem and its consequences for dispersed collabora tion, Organization Science, 12(3), 346-371. [4] Dickey, M., Burnett, G., Chudoba, K., & Kazmer, M. (2007). Do you read me? Perspective making and perspective taking in chat communications. Journal of the Association of Information Systems, 8(1), 47-70. [5] Ducheneaut, N., & Bellotti, V. (2003). Ceci nest pas un objet? Talking about objects in email. Human Computer Interaction, 18, 85110. [6] Ducheneaut, N., & Watts, L. A. (2005). In search of coherence: A review of e-Mail research, HumanCom puter Interaction, 20, 1148. [7] Fischer, D. (1981). Communication in organizations, West Publishing Company, MN. [8] Hinds, P. J., & Bailey D. E. (2003). Out of sync: Understanding conflict in distributed teams. Organiza tion Science, 14(6), 615-632. [9] Horton, W. S., & Keysar, B. (1996). When do speakers take into account common ground? Cognition, 59, 91-117. [10] Katz, A., & Teeni, D. (2007). The contingent impact of contextualization on computer-mediated collab oration Organization Science, 18(2), 261-279. [11] Kerr, B. (2003, October). Thread arcs: An email thread visualization, IEEE Symposium on Information Vi sualization (INFOVIS 2003), 211-218. [12] Kerr, B., & Wilcox E. (2004, April). Designing Remail: Reinventing the email client through Innovation and Integration. CHI 2004, Vienna, Austria, 837-852. [13] Keysar, B., Barr, D. J., Balin, J. A., & Brauner, J. S. (2000). Taking perspective in conversation: The role of mutual knowledge in comprehension, Psychological Science, 11(1), 32-38. [14] Krauss, R. M., & Fussell, S. R. (1991). Perspective-taking in communication: Representations of others knowledge, Social Cognition, 9, 2-24. [15] Kraut, R. E., Fussell, S. R., Brennan, S. E., & Seigel, J. (2002). Understanding effects of proximity on collaboration: Implications for technologies to support remote collaborative work. In P. J. Hinds & S. Kiesler, (Eds.), Distributed work. (pp. 137162). MIT Press, Cambridge, MA. Management Journal for Theory and Practice Management 2012/64 [16] Roßnagel, C. (2000). Cognitive load and perspectives-taking: Applying the automatic-controlled dis tinction to verbal communication, European Journal of Social Psychology, 30, 429-445. [17] Rohall, S., Gruen, D., Moody, P., & Kellerman, S. (2001). Email visualizations to aid communications, Proc. InfoVis 2001, IEEE, 12-15. [18] Schwartz, G. D., & Teeni, D. (2000). Tying knowledge to action with kMail, IEEE Intelligent Systems, 15(3), 33-39. [19] Sommerville, I., Rodden, T., & Dix, A. (1996 March). Systems development and co-operative work: Meth ods & techniques (SYCOMT), CSCW Symposium. [20] Tan, M. (1992). The effects of verbal and nonverbal behaviors on mutual understanding: An empirical study, Proc. SIGCPR, ACM, 268-276. [21] Tyler, J. R., & Tang, J. C. (2003). When can I expect an email response? A study of rhythms in email usage. Proceedings of the ECSCW2003 European Conference on Computer Supported Cooperative Work. New York: Springer-Verlag. [22] Venolia, G. D., & Neustaedter, C. (2003, April). Understanding sequence and reply relationships within email conversations: A mixed-model visualization, Proc. SIGCHI2003, 5 (1), Ft. Lauderdale, Florida, USA, 361 - 368. [23] Whittaker, S. (2005). Supporting collaborative task management in email, Human-Computer Interac tion, 20(1 & 2), 49-88. Receieved: September 2012. Accepted: April 2012. About the Author Adi Katz Department of Industrial Engineering and Management SCE College of Engineering, Israel E-mail: adis@sce.ac.il Adi Katz received her Ph.D. in 2004 from Bar-Ilan University, Israel, specializing in computer mediated communication for organizational processes. Her main research interests include: human-computer interactions, IT aesthetics, computer-mediated communication (CMC), computer-supported cooperative work (CSCW), metaphoric interface design and children interface design. Her paper in IwC, entitled What is beautiful is usable (co-authored with N. Tractinsky) has been cited over 540 times and occupied the first position on the list of top 25 hottest articles in ScienceDirect. 2012/64 Management Journal for Theory and Practice Management 2012/64 Predrag Jovanović 1, Slađana Benković2 1Public Procurement Office 2University in Belgrade, Faculty of Organizational Sciences Improvements in Organizing Public Procurement at the Local Self-Government Level in Serbia UDC: 005.912:658.716(497.11) DOI: 10.7595/management.fon.2012.0025 The issue of establishing offices for public procurement is very topical in Serbia, having in mind that 1,200 public procurement officers have been certified so far, entailing the need to set up an adequate structure as the operating field. It is also important to determine a correlation between public procurement offices and other organizational units within contracting authority. Further, it is necessary to determine how the public procurement offices at the local self-government level can help contracting authorities in a city/municipality, and in particular the scope of centralization of public procurement that public procurement offices in the city/municipality could conduct in the name and on behalf of local contracting authorities. Keywords: public procurenment, local Government, centrlaization, strategy, Serbia 1. Introduction It is estimated that the share of public procurement in local self-government budgets in Serbia for 2011 was 20-25% on average, indicating the importance of public procurement in managing public finances at the local self-government level (1). Hence, improving the management and organization of public procurement has significant potential for savings and increasing the efficiency of local self-governments. In order to release this potential for savings and increase efficiency of the local self-government, public procurement must reach the quality management standard defined as collection of good practices. A crucial factor in attaining quality management standard is introducing efficient organization of public procurement. According to applicable law, public procurement in Serbia features high level of decentralization (2). This means each direct/indirect budgetary beneficiary is a contracting authority and they make up some 12,000 contracting authorities in Serbia. The Public Procurement Law (PPL) allows a contracting authority to authorize another contracting authority to conduct public procurement in its name and on its behalf, or take certain actions in that procedure (Article 29 of the PPL). The option to integrate public procurements creates a possibility to combine organizational models of decentralization and centralization of procurement in order to set the model best suited to the existing circumstances. This paper begins with a description of quality management standard that public procurement offices at the local self-government level should attain. The second part focuses on organizing procurement so as to maximize advantages offered by centralization of public procurement in order to reach the quality management standard. In particular, it elaborates cases which do and which do not justify the approach of centralizing public procurement, which is most relevant to local self-governments in defining the concept of organization and operation of public procurement offices, having in mind that public procurement offices are the ones to implement the centralized public procurement. The conclusion summarizes recommendations to local selfgovernments concerning setting of the quality management standard and organization of public procurement offices. Management Journal for Theory and Practice Management 2012/64 2. Quality management standard Quality management standard can be defined as collection of good practices or level of quality management that should be reached or sought. As for the organization of public procurement in local self-governments in Serbia, the concept of quality standard should be distinguished from minimum standard which is in compliance with the legislation. Quality management standard is a description of good practice in managing public procurements that leads to applying the principles and goals of public procurement (1). Principles of public procurement are defined by the Public Procurement Law as: 1) principle of cost-effectiveness and efficiency, 2) principle of ensuring competition, 3) principle of transparency and 4) principle of equality of bidders (2). Given that public procurement goals in Serbia are not specifically defined, we can resort to the definition of the US National Institute of Governmental Purchasing - NIGP: to satisfy the needs of contracting authority by the means of market responding to its requests by providing what is needed (i.e., the quality) when is needed (i.e., in a timely fashion) for a fair and reasonable consideration, while at the same time serving the long term state interests by minimizing business and technical risks, achieving socio-economic objectives, maximizing competition and maintaining high level of integrity (1) Having in mind the stated principles and goals of public procurement, it is possible to define a general model of public procurement organization at the local self-government level in Serbia that enables its implementation. This model is designed on the basis of good practice in the EU countries, particularly Denmark, and is the goal that local self-governments in Serbia should strive to reach within the next 5 - 10 years. The Danish experience shows that transition from the level of management and organization featured by the present-day local self-government in Serbia to the level set as the goal, which will be elaborated below, brings huge savings and significantly increases efficiency in the work of local administration (1). Quality management standard and organization of public procurement has the following traits. Local self-government has a defined public procurement policy that covers all procurements in a city/municipality. Public procurement policy should be adopted by the city council and posted at the website of the city/municipality. Public procurement policy has to include these elements: ban on political interference in both public procurement procedures and work of public procurement offices; adopting code of ethics in public procurements by city/municipal assembly; efficient mechanism to sanction the breaches of public procurement rules and code of ethics; clear distinction between procurements conducted by budgetary beneficiaries with or without assistance of public procurement offices and procurements conducted by public procurement service in the name and on behalf of contracting authorities. Public procurement service at the local self-government level should be designed as a centre of public procurements expertise at the level of city/municipality. This service may be organized as a separate organizational unit reporting to the mayor, or as an organizational unit within a broader segment, such as the sector of finance. The number, structure and qualification level of employees in this service should be directly dependent on the portfolio of the planned public procurements. It is also important that the city/municipality has its own mediumterm strategy for selection, recruitment and training of employees in the public procurement service. Public procurement service must have clearly defined tasks. The most important ones include: gathering and analyzing data on public procurements conducted on the city/municipality territory, overview of procurement plans for all budgetary beneficiaries, preparing annual procurement plans to be adopted by the city/municipality, regular reporting to relevant assembly on implementation of procurement plans. Further, public procurement service should maintain standing communication with end users so as to involve them in the process as subjects whose needs are being satisfied by procurement, from the very beginning, including the defining of needs, up to the very last stage of public procurement, which is contract implementation. Management Journal for Theory and Practice Management 2012/64 An important task of the service is market research, conducted in order to identify relevant bidders and learn market prices of goods, services and works to be procured. Public procurement service should provide advisory support to contracting authorities at the local self-government level when conducting public procurement procedures, or even engage itself in conducting such public procurement procedures for the sake of contracting authorities. In another form of assistance to contracting authorities, the service should post on its website models of tender documentation, decisions and contracts for their further use by contracting authorities. The service should also create its database on public procurements covering at least the following essential information: what was procured (goods, services, or works), the procedure, contract prices and names of bidders. The Service should have regular communication and good cooperation with the Public Procurement Office of the Republic of Serbia to which it, inter alia, submits quarterly reports on conducted public procurement procedures. The Service should also be actively engaged in raising awareness of contracting authorities in the city/municipality on the importance of introducing quality management standard and organization. 3. Centralized public procurement Table 1 shows the structure of share of contracting authorities in categories of public institutions in health care, education and culture and local self-governments in the total number of concluded contracts, and the share in the total value of public procurement in 2011 (3). Table 1. Category of contracting Share in number of concluded Share in total value of public authorities PP contracts (%) procurement (%) Public institutions Local self-government Source: Public Procurement Office: Report on public procurements in the Republic of Serbia in 2011, 2012 Table 1 shows that 73% contracting authorities procured 25% of total value of public procurement, indicating that these two categories of contracting authorities have most pronounced fragmentation in public procurement. Since most health care, education and culture institutions are under the authority of local self-governments, the question is whether the consolidation of procurement for the needs of schools, kindergartens, etc. at the level of the city/municipality would result in savings on the grounds of lower purchasing prices and more favorable terms of purchase. The answer to this question requires a prior considering of situations that justify consolidation of public procurement, i.e., the preconditions for centralizing public procurement. 4. Preconditions for centralization OF Public procurement Centralized procurement implies that procurements for several contracting authorities are not conducted separately, i.e., individually, but rather that the needs of contracting authorities are consolidated in order to conduct a single public procurement procedure and purchase the specified subject of procurement which will meet the needs of each contracting authority by quality, attributes and quantity (4). It follows that a prerequisite for successful consolidated public procurement is that the needs of several contracting authorities for given procurement subject are corresponding in terms of attributes, quality and other features, except for the quantity. Otherwise, one or more contracting authorities will end up getting what Management Journal for Theory and Practice Management 2012/64 they do not need, thus missing the key objective of public procurement. The second prerequisite to be fulfilled for a justified consolidation of procurement is that it can bring about more benefits than individually conducted procurements, primarily concerning the price. Namely, the purchase of larger quantities enables the companies (bidders) to achieve the effect of economies of scale. The greater the effect of economies of scale in given procurement matter, the bigger the potential for savings by centralization. In order to determine cases that justify conducting of centralized public procurement, it is necessary to examine potential relations of demand and supply that may emerge on the market. Figure 1. Interrelation between homogeneity of demand and economies of scale in supply Source: OECD (2010), Public Procurement Training for IPA Countries, Sigma Training Manual, OECD Where high homogeneity on the part of demand - which implies that contracting authorities have the same or very similar needs concerning attributes and quality of the goods, times and places of delivery, and other requirements - coincides with pronounced (high) economies of scale on the part of supply (Quadrant 4 in Figure 1), it is justified to consolidate public procurements for several contracting authorities. Where contracting authorities have heterogeneous requirements concerning attributes or quality or terms (timelines and places of delivery, etc.), consolidating such procurements will not result in suiting their needs best. Thus, in cases of non-standardized requests (Quadrant 2, Figure 1), consolidating public procurements is not justified even if there are significant potentials to achieve economies of scale. Small series products (Quadrant 3, Figure 1) entail no economies of scale and therefore there is no reason to consolidate procurement, even where several contracting authorities intend to buy the same goods. Finally, where there is neither economies of scale nor homogeneity on the part of demand nor possibilities to achieve economies of scale, there is certainly no reason to conduct consolidated public procurement (Quadrant 1, Figure 1); instead, contracting authorities should conduct individual public procurement procedures. Management Journal for Theory and Practice Management 2012/64 It can be derived that centralization of public procurement is justified in a relatively small number of cases where a high level of homogeneity of demand coincide with a pronounced effect of economies of scale. 5. Positive effects of public procurement centralization Benefits that can be achieved by centralizing public procurement, provided it is justified, are manifold (5). Most important positive effects of centralization are as follows: 1) Higher purchasing power of contracting authority, placing it into a more favorable position vis-à-vis bid ders; 2) Large potential to reduce purchase prices on the basis of achieving economies of scale; 3) Cutting transaction costs, since several procedures are being replaces by one; 4) Concentrating and upgrading knowledge (expertise) to the benefit of most contracting authorities; 5) Reducing the risk of unsuccessful procedure; 6) Better coordination and higher standardization level, and 7) Lower risk of favoring any particular bidder. Aggregating demands, as the hallmark of centralization, ensures better bargaining position of buyer in realtion to bidders. This creates an environment of tougher competition for the job on the part of supply and results in more favorable conditions of purchasing for the contracting authority. Purchasing larger volumes enables the bidders to create effect of economies of scale for standardized products. With the higher share of fixed costs in overall production costs, producers will be able go further with reducing the offered price. The effects of centralization of public procurement on this basis can be seen in the case of public procurements conducted individually by elementary schools in the City of Niš in 2008, as opposed to procuring the same items in 2009 in a consolidated procedure by Public Procurement Division of the City of Niš City Administration, on behalf of the same category of contracting authorities, i.e., elementary schools (Table 2) (6). Table 2. Comparative overview of purchase prices for decentralized and centralized public procurement City of Niš Subject of public procurement School chair Computer desk Computer configuration Monitor Computer configuration with monitor Individual procurement* Consolidated procurement* Savings (%) 15.0 65.5 197.5 115.0 314.0 12.0 32.0 182.0 93.5 253.0  * prices are in EUR, pursuant to average exchange rate of the National Bank of Serbia on the day of concluding contract Savings by centralization of public procurement is also achieved on the grounds of reducing transaction costs, since several procedures for the same procurement subject are replaced by a single procedure. Consolidating several procedures into one results in significant savings in man/hours and allows employees to carry out other tasks important for the functioning of their organization. This increases the total amount of savings from centralization, as well as cost-effectiveness of public procurement procedure and efficiency in using resources of contracting authority, primarily human ones. Concentrating knowledge by means of centralizing public procurement facilitates the use of the highest level expertise for broader range of contracting authorities covering not only those for whom the public procurement is conducted, but also the others who can approach the body in charge of centralized public procurement seeking advice, model of tender documentation or contract, etc. Management Journal for Theory and Practice Management 2012/64 Centralized conducting of public procurement has another key advantage in significantly reducing the risk of cancelling public procurement procedure due to non-compliance. Given that centralized procurement, as a rule, is conducted by most competent experts commissioned for the needs of several contracting authorities, it is more likely that tender documentation will be better prepared in terms of quantifying the quality criteria and other elements and that the procedure will be duly conducted, than if each contracting authority conducts its own procedure. Reducing the risk of repeating the procedure contributes to increased cost-effectiveness of public procurement measured by spent man/hours, and also to costs stemming from disruptions in supply and a regular operation of contracting authority (public company, school, kindergarten, hospital), and this all reflects on the end-users citizens. Centralization achieves better coordination and higher level of standardization among contracting authorities. Individual contracting authorities, either autonomous or belonging to a larger system, typically possess specialized knowledge. However, without an efficient exchange of information and without mutual sharing of experience and information, the efficiency of the system as a whole will be limited. Centralization enables updating information and quicker finding solutions to be used by all parties within the system. Since certain products and services are interlinked, such as PCs and printers, banking and insuring services, there is the need for exchanging information about associated and related markets, intensity of competition on those markets, and potential bidders. It is also recommended to use the central level to seek and identify solutions for the best scoring system and defining contractual requirements, which will altogether contribute to a greater efficiency of public procurement from the aspect of the system as a whole. Standardization is a major factor in reducing purchase prices by means of enabling consolidation of procurement of goods and services on the part of the demand (the so-called buying in bulk) allowing at the same time the producers to produce large quantities of products with the same attributes, thus attaining lower unit costs based on the effect of economies of scale. In addition, centralization of public procurement contributes to reducing the risk of favouring certain handpicked bidders. Tailoring specifications and criteria for the purpose of favoring specific bidder is most often based on local specificities in terms of delivery, product attributes, etc. Tailoring specifications, criteria and terms to a hand-picked bidder is revealed more easily at the centralized level than when conducting a number of smaller procurements. Centralized conducting of public procurement is justified in specific instances that are not characterized by homogeneity of demand or by economies of scale on the part of supply. One such example is strategic procurement. Strategic procurements are those that have far-reaching implications on the economy, or ones having a broader social impact. It is reasonable to apply centralization in the above areas, exactly because of the effect of such procurements. This applies to areas such as: health care, which requires central coordination in order to ensure consistent standards, then education, security and defense sector, and environment which requires ensuring a comprehensive and coordinated approach. Finally, centralization of public procurement is also justified in emergency situations such as natural disasters, earthquakes, epidemics, etc. In emergency situations, centralizing public procurement brings several advantages (4): 1) Ensures better coordination of procurement; 2) Reduces risk of purchasing goods, services or works of inadequate attributes and/or quality, and 3) Reduces the risk of corruption in the management of the approved emergency funds and increases possibilities to reveal possible misuse, as shown by the case of procuring the vaccine against the swine flu in 2009 (5). 6. Disadvantages of centralized public procurement Centralization of public procurement has certain flaws when compared to the decentralized procurement system. Key disadvantages of centralized procurements are (7): 1) Aggregation of demand may lead to aggregation of supply, so that eventually only a small group of bidders or even a single bidder is able to meet a specific need. This case entails a risk that few existing bidders can easily enter into collusion on price or other terms that, in the end, are less favorable than in case of in Management Journal for Theory and Practice Management 2012/64 dividual procurements. Likewise, the bargaining position of bidders improves in proportion to the decline in their number, and it is least favorable where only a single bidder is capable of meeting the aggregated public procurement; 2) Large procurements, as a rule, are an obstacle for small and medium enterprises, although these are often quite capable of offering superior and more innovative solutions in certain market segments (niches); 3) A smaller number of large procurements entails a risk for those who lose contract to end up being excluded from a significant portion of the market for a longer period of time. Namely, when contracting authorities purchase individually, each for themselves, if a bidder loses one tender it still has a fair chance, provided that it adjusts its bid, to win a tender issued by another contracting authority. In consolidated procurements, bidders who lose contract end up with a smaller part of the available demand than under the scenario without centralization. The bigger share of demand covered by centralization, the greater the risk of elimination from the market for a period of time (for the duration of contract); 4) Where contracting authority relies on a single large supplier who also deals with other major clients of its own, this may give the bidder a better bargaining position relative to contracting authority and may turn the tables in the bargaining to the detriment of contracting authority. 7. Recommendations for centralization Centralization of public procurement can increase cost-effectiveness of public procurement. A positive impact of centralization to cost-effectiveness of public procurement is reflected primarily in reducing the purchase prices and the transaction costs. In addition, centralization has a positive impact in strategic procurement and in certain emergency situations. However, circumstances under which consolidation of public procurement has positive impact are not widespread, so that the share of public procurement conducted by centralized bodies in the total value of procurements in the EU countries is approximately 5% (8). If centralization of public procurement is conducted under inadequate terms, the negative impact may be manifold: inappropriate value for money for contracting authority and creation of small number of big bidders who may easily collude and create non-competitive conditions at the expense of the contracting authority. It is therefore important to clearly determine, on the basis of market analysis, the items whose centralized procurement is justified and to define measures to prevent the decrease in the participation of small and medium enterprises and subsequent waning of competition. Therefore, it is very important that local self-government properly determine which goods and services should be purchased by public procurement service on behalf of other contracting authorities, and also in which cases the Service should provide them another kind of assistance, most notably the advisory one. Conclusion Local self-governments in Serbia in the coming period should prepare their respective medium-term strategies for the next 5 years, in terms of the way in which public procurement offices will be set up. This is turning into necessity having in mind that, so far, a substantial number of public procurement officers have been certified and they should now be appropriately organized into adequate public procurement offices at the level of local self-governments. Well designed public procurement strategies and policies will facilitate reaching a quality management standard in public procurements coupled with appropriate organizational structure of public procurement offices in cities and municipalities, and this will in turn result in savings and increase in the efficiency of operation of local self-governments. When designing the organization and operation of public procurement offices, special attention should be given to exploiting potentials for centralization of public procurements in order to achieve a positive impact while minimizing the risks inherent to centralization. This can be accomplished if each procurement subject is carefully considered in terms of fulfilling the prerequisites for centralization, instead of opting for an indiscriminate application of this method. The limitation of conditions conducive to application of centralization is also indicated by the fact that mere 5% of total value of public procurements in EU Member States is realized by central bodies for public procurement. Lastly, it is important to warn that centralization may have a substantial negative impact and cause long-term disruptions in the market, if applied where the adequate preconditions were not fulfilled. Management Journal for Theory and Practice Management 2012/64 REFERENCES (1) Kirsten Ejlskov Jansen: Development of Organizational Solutions and Recommendations for Public Procurement Units in Pilot Cities, analytical report within the Project: Strengthening Accountability Mechanisms in Public Finance, UNDP and Kingdom of Norway, 2012 (2) Public Procurement Law, Official Gazette of the RS, No. 116/08 (3) Public Procurement Office: Report on public procurements in the Republic of Serbia in 2011, 2012 (4) SIGMA/OECD, Centralized Purchasing Systems in the European Union, Sigma Papers, No. 47, OECD, (5) SIGMA/OECD, Public Procurement Training for IPA Countries, Sigma Training Manual, OECD, 2010 (6) Public Procurement Office, Analytical Document, 2012 (7) N. Dimitri, G. Piga and G. Spagnolo, Handbook of procurement, Cambridge University Press, 2006 (8) G. Albano and M. Sparo, Flexible Strategies for Centralized Public Procurement, Review of Econom ics and Institutions, Vol 1 - No 2, 2010 Receieved: August 2012. Accepted: September 2012. About the Author Sladjana Benkovic University in Belgrade, Faculty of Organizational Sciences E-mail: ada.d@orion.rs Dr. Sladjana Benkovic works as associate professor at the Faculty of Organizational Science, Belgrade Unviersity, Serbia, where she completed her bechelor, master and doctoral studies. She has worked at the Faculty for the last 15 years, and her prefereances regarding research and teaching interests are related to the field of financial management, methods of financing corporate development, project financing, apprisal and evaluating of cash flow Ph.D. Predrag Jovanovic works as the director of the Public Procurement Office, the Republic of Serbia. He completed his bachelor, master and doctoral studies t the School of Economics, University of Belgrade, Serbia,. His research work, commenced at the Economics institute, was focused on investments, financial markets, competitiveness and public procurement. Predrag Jovanovic Public Procurement Office E-mail: ada.d@orion.rs 2012/64 Management Journal for Theory and Practice Management 2012/64 Ofer Barkai1, Elad Harison2 1Shamoon College of Engineering, Department of Industrial Engineering and Management, Bialik St., Beer Sheva, Israel 2Shenkar College of Engineering and Design, Department of Industrial Engineering and Management, 12 Anne Frank St., Ramat Gan, Israel Can Service Faults in Passenger Flights be Prevented? A proposed Framework UDC: 338.46:658.562 ; 005.6:004]:656.7 DOI: 10.7595/management.fon.2012.0020 XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia The paper devises a new framework for implementing preventive service systems that aim at preventing service failures and complaints in air transport services. By proactively monitoring the provision of services to passengers and averting service failures, preventive service management decreases the volume of customer complaints and assists in enhancing service quality and airline reputation. The presented framework is based on extensive use of IT systems that continuously monitor the service infrastructure in a cycle of activities that includes detection and prevention of service failures, notification of service malfunctions and follow-up operations. The implementation and the value of the framework are exemplified in various scenarios that arise in the operation of commercial flights and often facilitate passenger complaints and discomfort. Keywords: preventive service management, service faults, customer complaints, customer satisfaction. 1. Introduction The dramatic growth of the airline industry and air transport worldwide highlights the major economic and commercial importance of provision of quality and punctual flight services (Kim and Lee, 2009). The operation of services is challenging and complex, particularly in the airline industry, where large numbers of passengers continuously travel to multitude destinations worldwide and air transport services incorporate a broad set of resources, safety and work procedures. Recent studies emphasize the importance of complaint management as a key factor for ensuring customer satisfaction and, in the longer term, customer loyalty (Homburg et al., 2010). At the same time, studies conducted on the subject of service recovery argue that most of the customers that confront service failures avoid complaining, especially before deciding to leave their service providers, and thereby do not provide service companies the opportunity to correct their negative experiences or compensate them for their damages (Chebat, Davidow, and Codjovi 2005; Sharma et al. 2010). Further, similar service failures often repeat themselves (either in same or different contexts) and more customers are exposed to service malfunctions that could have been prevented had companies enforced service control mechanisms earlier. The recent and common practice applied by service providers that seek to improve their operations is complaint management. Complaint management includes scope of activities that encourage dissatisfied customers to complain, rather than remaining dissatisfied and spread negative opinions, correct their negative experiences and convert dissatisfied customers to satisfied and loyal clients (Fornell and Wernerfelt, 1987; Paul et al., 2009). However, the major drawbacks of complaint management are the exposure of customers to service faults and the requirement that customers contact their service providers and complain as a precondition for initiating complaint management procedures. Preventive service management is a new and innovative framework that aims at improving customer satisfaction without exposing customers to negative experiences, by preventing service faults and the consequent customer complaints. The methodology is based on ongoing monitoring of the service infrastructure and processes and on detection of conditions that may lead to potential service failures. Since continuous mon Management Journal for Theory and Practice Management 2012/64 itoring activities require intensive labor and may be very costly, we advocate the application of automated systems to carry out monitoring activities. Preventive service management aims at guaranteeing consumer satisfaction as well as proactive elimination of events that may lead to potential service malfunctions by using human-based procedures and automated systems. Indeed, prevention of failures was explored in the airline industry, considering, in particular, airline maintenance and safety policies (see for example Liou et al., 2008; Netjasov and Janic, 2008). However, little research has been dedicated to preventive practices that can enhance the quality of the service provided to passengers. Preventive service management suggests that by identifying, monitoring and preventing different factors and occurrences that result in service malfunctions, airlines can improve the level of delivered services and customer satisfaction, while sparing inconvenience and recovery costs. 2. Preventive service management: a conceptual framework and methodology Preventive service management can be applied in a wide range of organizations, including airline companies. However, its application requires a coherent and constructed framework that addresses a broad variety of services and processes that support them. The methodology and the framework presented in this paper were constructed to accomplish the major aim of reducing the likelihood of service failures. This aim is addressed and met at large by establishing a model that addresses a broad spectrum of service related processes and organizational units on the basis of four major stages: detection, prevention, notification and follow-up (see Fig. 1). Figure 1: Stages of the Preventive Service Management process Detection represents the stage of continuous monitoring of services to eliminate possible occurrence of dissatisfactory events. For example, airline companies may continuously monitor the state of major and minor aircraft maintenance problems to allocate replacement aircraft and team within a short period. Automation of the monitoring processes via real-time information systems provides broad coverage of the services in multiple destinations worldwide, while enabling the airline to economize on labor costs. Service activities and information systems that carry out detection processes should address the following aspects: 1) The service operations, processes and related systems that should be monitored by the airline. 2) The population of customers for which detection is carried out (for example, business passengers, fre quent flyers or all the passengers in a particular flight). 3) The frequency of operating detection activities (for example, hourly, daily or weekly monitoring of service processes). 4) Who is responsible for different detection operations. 5) The ways in which detection operations are organized and carried out, the information systems and the airline resources that they use. 6) Which events are defined by the airline as service malfunctions. Management Journal for Theory and Practice Management 2012/64 Prevention represents the activities that the airline implements to eliminate potential risk factors that affect the proper provision of services and their quality. In this stage, the airline carries out activities that proactively prevent the occurrences of service failures, such as emergency and contingency operations. In case planned service outages and maintenance operations are carried out, prevention includes the organization of activities and resources that can shorten the duration of service malfunctions and minimize financial losses. Our framework consists of the following aspects of prevention processes: 1) Identifying potential service failures that may occur and articulating plans to resolve them in advance. 2) Allocation of resources and prioritizing necessary means to prevent service failures from occurring - The allocation of resources can also be decided on an economic basis: service providers can decide to invest in preventing only the failures that cause damages that surpass the costs of the resources, without taking into account downgraded service quality and reputation. 3) Key roles in the firm that should be informed about service failures that are prevented (major stakehold ers within the airline, such as the CEO, technical experts and customer service managers). 4) Subsequent events that follow particular service failures and should be prevented. Notification provides information about service failures to customers who are likely to be affected by them or to customers that the airline finds it important to alert about the problems and the major steps that are taken to solve them. Notifications may be delivered to customers in conjunction with the preventive operations that are carried out or may be activated after the prevention stage is completed. The proposed framework suggests that by applying notification in an automated way, the firm can address a large number of customer calls in cases of widespread service failures. It is further suggested that firms should implement additional active notification systems that pro-actively contact customers and deliver notifications about expected service failures or failures that are discovered and can affect the operations of customers. 3. Applying the preventive service framework: prevention of potential service failures in passenger flights The most common passengers complaints refer to the following categories (Weber and Sparks, 2004; Kim and Lee, 2009): Airline punctuality and convenient flight scheduling. Food quality and fulfillment of special meal requests (such as a vegetarian, Kosher or a childrens meal). Proper and complete delivery and receipt of baggage at the flight destination. Cabin and check-in services. Airlines can comply with a broad spectrum of service failures and malfunctions and prevent them by implementing proactive steps for monitoring and correcting service failures. The range of service processes and the failures associated with them begins when customers are ordering their tickets and ends when they leave the flight and collect their luggage. In general, the sources of service failures can be divided into three major groups: first, data on passengers or on airplanes are not streamlined between various information systems of the firm, resulting in maltreating customers despite the available information on their bookings and preferences. For example, a malfunctioning seat that is reported in the aircraft maintenance information system and is not removed from the ticketing system until it is fixed can create a problem to the passenger that purchased it and to the crew that should remove him to another seat shortly before take-off. Second, passengers provide information via their bookings, but further know-how about their flight habits and needs that could ensure their convenience and satisfaction was not derived from their booking. For example, passengers that purchase childrens tickets should not be allowed to choose seats near the exits, since children are not strong enough to open the exit doors in case of emergency. Hence, the ticketing system should prohibit choosing these seats when bookings that include a child are made so as to prevent the inconvenience of allocating different seats before the flight. Third, due to lack of attention or mistakes of passengers or service providers, passengers are provided with inferior services than could have been supplied to them had these mistakes been automatically tracked and prevented. For example, if the passenger or the travel agent forgets to request special meals, the frequent flyer system can ensure via the purchasing history that the passenger usually consumes standard meals or otherwise contact the passenger before the flight to validate his choice. Management Journal for Theory and Practice Management 2012/64 Table 1 summarizes the various potential service failure events that can occur throughout the process of service provision in commercial passenger flights. As the various types of service failures do not depend on each other, airlines can choose to implement some or all of the proposed solutions to prevent them. Table 1: Potential service failures in passenger flights and activities to monitor and prevent them Service failure description Unplanned flight delay - Delay of arrival to the destination and possibility of missing connection flights Proposed solution Notification of passengers upon the event, the expected delay and instructions what actions should be taken. Preparation of dining and sleeping arrangement, if needed, including passenger transportation. Notification to passengers about planned flight change (via SMS or phone). Rental of aircraft and crew, if needed. Frequent update of passengers. Allocation of baby and parent seats by the ticketing system upon completion of a booking. Child seats would not be permitted next to emergency exits. Disabled persons ordering wheelchairs would not be seated next to emergency exits. Unavailability of seats due to technical problems requires notification of maintenance, temporarily removal from the ticketing system for upcoming flights and automatic allocation of alternative seats if purchased. Planned flight delay - Delay of arrival to the destination and possibility of missing connection flights Ticketing and seat allocation - Improper allocation of seats for babies, children and disabled persons by the ticketing system   Flight manifest inaccuracies - Passengers do not appear in the manifest despite purchasing and receiving their flight tickets Before flights automatically examining that the manifest and the passenger ticket purchases are identical. If mismatches were revealed, passengers would be provided with alternative seats. Arrival of passenger luggage to a wrong destination Flight time brought forward Inconvenience and loss of Duty Free shopping time Meals do not fit preferences of passengers (vegetarian, Kosher, etc.) due to travel agents mistakes or passengers forgetting to specially order them Reduction of pre-flight waiting time Animal transport Lack of passengers knowledge can impede the check-in process or would not allow transporting the animal. 10 Confusion about the flight time due to mistakes and lack of attention 11 General or specific seat malfunctions in the media system Receipt of contact details and address from passengers reporting luggage claims. Update of passengers via SMS or phone upon finding the luggage and coordinating its delivery. Installation of additional barcode readers in baggage compartments of airplanes to prevent wrong loading. Passengers are notified via SMS or by phone Automatic review of Frequent Flyer history can reveal mismatch between passengers meal orders in the present and in the past. Then, a company representative will call the passengers to ensure the accuracy of their present meal order. Luggage collection from the passengers house (as a premium/standard service). Delivery of an email a few days before the flight stating the procedures and requests in detail, including contact details of the airlines advisory veterinarian. Redesign of the electronic ticket to highlight the flight date and time. Delivery of SMS with the flight details the day before. Reporting the malfunctions to maintenance. Distribution of media players to passengers. Among the various service failures that can be prevented by airlines, mismatch between passengers meal preferences and the meal ordered for them (seventh category in Table 1) can occur due to mistakes in online booking or due to a travel agents fault. This service failure can cause major inconvenience to passengers who cannot consume non-standard meals (due to medical or religious reasons), as most airlines offer them only if they were ordered before the flight. Fig. 2 exemplifies how this failure can be prevented by linking the various information systems and data sources of the airline. This process aims at ensuring that ordered meals match Management Journal for Theory and Practice Management 2012/64 the preferences of passengers, indicated by data on their previous and recent flights. If no mismatch is found, the passenger receives by SMS his flight and meal details. Otherwise, an airline representative contacts the passenger to verify that the meal order matches their preferences and, if necessary, corrects it. Figure 2: Preventing mismatch between meal orders and passenger preferences Conclusion The recent research literature on service and customer relationship management has largely focused on preserving customer satisfaction and addressing customer complaints as means for improving service quality. This paper takes a different approach towards the possibilities of improving the quality of services by proposing the preventive service management framework, which is based on monitoring the provision of services and eliminating potential service failures. The airline industry was chosen to illustrate the application of preventive service management and its benefits as the operation of airlines and their revenues are largely based on the quality of services. Additionally, airline operations are sensitive to the emergence of service failures in multitude operations and contexts, for example as a result of technical malfunctions in aircraft cabin systems. The presented methodology suggests that while the majority of services providing organizations, including airline companies, react to service malfunctions in an attempt to preserve satisfaction and loyalty of customers, service quality can be preserved in advance, hence sparing airlines the negative consequences of service failures. The methodology also advocates extensive use of information and communications systems. On the one hand, the use of information technologies enables airlines to enhance the degree and the quality of communication between them and their customers (e.g. by notifying them about their orders or any changes in the flight schedule). On the other hand, airline companies can produce larger value from data on aircraft procedures or about their customers habits (e.g. by preventing ticketing of a broken seat or by identifying mismatch between an ordered meal and the customers special food habits from past purchases). Moreover, by using information and communications systems for automatic processing of information and for handling of potential service failure factors, airlines do not only enhance service quality but also substantially economize on labor and service recovery costs. Management Journal for Theory and Practice Management 2012/64 REFERENCES [1] Chebat, J.C., Davidow, M. and Codjovi, I., Silent Voices: Why Some Dissatisfied Consumers Fail to Com plain, Journal of Service Research, Vol. 7, 2005, 328-342. [2] Fornell, C. and Wernerfelt, B., Defensive Marketing Strategy by Customer Complaint Management: A Theoretical Analysis, Journal of Marketing Research, Vol. 24, 1987, 337-346. [3] Homburg, C., Fürst, A. and Koschate, N., On the importance of complaint handling design: a multi-level analysis of the impact in specific complaint situations, , Vol. , 2010, 265-287. [4] Kim, Y.K., Lee, H.R., 2009. Passenger complaints under irregular airline conditions cross-cultural study. Journal of Air Transport Management 15, 350-353. [5] Liou, J.J.H., Yen, L., Tzeng, G.H., 2008. Building an effective safety management system for airlines. Journal of Air Transport Management 14, 20-26. [6] Netjasov, F., Janic, M., 2008. A review of research on risk and safety modelling in civil aviation. Journal of Air Transport Management 14, 213-220. [7] , M.,, T.,, D.D., , K.P. and , C., Toward a theory of repeat purchase drivers for consumer services, , , 2009, 215-237. [8] Sharma, P., Marshall, R., Reday, P.A. and Na, W., Complainers versus non-complainers: a multi-national investigation of individual and situational influences on customer complaint behaviour, , Vol. , 2010, 163-180. [9] Weber, K., Sparks, B., 2004. Consumer attributes and behavioral responses to service failures in strate gic airlines alliance settings. Journal of Air Transport Management 10, 361-367. Receieved: April 2012. Accepted: September 2012. About the Author Ofer Barkai 1Shamoon College of Engineering, Department of Industrial Engineering and Management, Bialik St., Beer Sheva, Israel; ofer@sce.ac.il Dr. Ofer Barkai is a Lecturer in the Department of Industrial Engineering and Management at the Shamoon College of Engineering. In addition he has 27 years of industrial experience. He specializes in wage and compensation strategies at the organizational and managerial levels, compensation schemes, sectorial compensation and payment methods and service organization. Elad Harison Shenkar College of Engineering and Design, Department of Industrial Engineering and Management, 12 Anne Frank St., Ramat Gan, Israel; eladha@shenkar.ac.il Dr. Elad Harison is the Head of the Department of Industrial Engineering and Management at the Shenkar College of Engineering and Design, Israel. He specializes in the Economics of innovation and technical change in the context of information technologies. He was involved in several research projects on innovation policies and ICT for the European Commission and for several European governments. 2012/64 Management Journal for Theory and Practice Management 2012/64 Dragan Marković1, Dejan Petrović2, Marko Mihić2 1 Faculty of management, Sremski Karlovci 2 Faculty of Organizational Sciences, Belgrade Cost-Benefit Analysis of the Project of Power Generation from Renewable Sources UDC: 005.8:330.322]:621.311(497.11) ; 620.9(497.11) DOI: 10.7595/management.fon.2012.0018 The problem of exploitation of exclusively conventional sources of electricity points out the fact that environmental sustainability is seriously endangered, increasing the dependency of the state in the field of electricity supply, reducing the economic potential of the community by increasing the cost of repairs, etc. The consequences that arise as a result of perceived problems are: high emissions of CO2 into the atmosphere, coal reserves are reduced progressively, while the agricultural population increasingly tends to migrate from the countryside to the cities. The results of previous studies in the field of biomass from agricultural waste indicate an increase in energy efficiency. This study analyzes the current state of Kolubara and performs a socio-economic evaluation of the cost-effectiveness of a gradual transition from conventional to alternative energy sources. The results are obtained using the Cost Benefir analysis. The results of this study highlight the potential benefits of biomass from agricultural waste compared to conventional energy sources through the implementation of positive evaluation received in the CBA1 Keywords: Cost-Benefit Analysis, renewable electrical energy sources, biomass from agricultural waste, investment projects 1. Introduction The problem under investigation is a sad fact that the reserves of coal which is used as a non-renewable energy source in the RB Kolubara in the Municipality of Lazarevac are smaller and smaller. Reserves are almost exhausted. In addition to this problem, it seems that environmental problems and the problems of underdevelopment of the economy of the region and therefore the high unemployment rate, are increased. As it is well known, electrical energy produced at Kolubara, supplies approximately fifty percent of electricity the Republic of Serbia needs. One must not ignore the fact that coal pollutes the environment and causes negative environmental effects, and therefore has an effect upon cost increase. Hence the control of climate change [1] is one of the biggest historical challenges facing humanity in the 21st century [2]. According to the Kyoto Agreement [3] which was ratified by the Republic of Serbia, Serbia is committed to reduce harmful emissions of CO2 into the atmosphere by 5.6% by the end of 2012 [4]. Also, a national consensus was reached that Serbia should increase its production of energy from renewable sources (only in the form of hydropower), from the present 7% of renewable energy production to 20% [5]. The results of previous studies in the field of using the biomass from agricultural waste indicate an increase in energy efficiency. In connection with these allegations are the facts that suggest that countries such as Denmark, Austria, Sweden and Germany, produc enough energy for their own needs, and export 5% of the energy to other countries [6]. An important fact is that after the 1970s global economic crisis Denmark exited the crisis by adopting a number plans as part of its energy policy and proved that it was possible to exploit the potential of biomass for the production of electricity and heat. It should be noted that Denmark, together with Norway, Sweden and the Netherlands, is today a state that not only meets its own needs for 1 The paper reports some of the results of the project Investigation of the modern tendency of strategic management through specialized management disciplines in the competitiveness of the Serbian economy, the document number 179 081, funded by the Ministry of Science and Technological Development of the Republic of Serbia. Management Journal for Theory and Practice Management 2012/64 electricity using biomass from agricultural waste, but also shows a constant increasing trend in exports [7]. With such a dynamic development of power generation [8], the use of biomass from agricultural waste there is a constantly present trend of increasing employment in the sector of renewable energy, so that on the basis of realistic forecasts, Germany is expected to create 400 thousand new jobs (about 2-3% per year) by 2020 [9]. Velimirovic and Djuric [10] point out that the industries based on renewable sources of electricity recorded the highest growth over the last six years. The study included the results that were obtained in the Laboratory for Thermal Engineering and Energy (Institute of Nuclear Sciences Vinča), and the results of the projects (NPEE 262 004) and (PTR-2022B), show that the concentration of CO2 in the products of combustion amounts to about 150 mg/m3, a value below the permissible limit of 250 mg/m3 [11]. Oka [12] points out that the utility value of electricity for all energy resources is equivalent to coal, and the emissions of CO2 in the flue gases within the limits proposed by the Institute of Nuclear Sciences. The purpose of the study is to analyze the current situation of RB Kolubara, to give a clear and precise estimate of the investment and outline the benefits of re-orientation from the conventional to the non-conventional sources of electricity in the RB Kolubara. Also, as regards the fact that the Kolubara is a state company that owns coal reserves for 25-30 years, the research is to find out whether this project based on the system of rational investment into a portfolio of new products, can be self-sustaining. Furthermore, the results of this research should point out that the advantages of using biomass from agricultural waste are meeting the environmental criteria for combustion, low investment and exploitation costs (operating effectiveness increasing from the current 13% to 21%) and employment opportunities for the entire area of RS, (about 23% per year), [13] and development of other economic sectors. The aim of the research is to establish whether there are and what are the impacts of indirect effects this project will have, and which are concerned with the reduction in energy imports, with raising the environmental protection to a higher level, with the development of regional economy, reduction of unemployment, migrations, and other. 2. Research method All calculations as well as choice of technology and market coverage were made for the RB Kolubara. The survey was conducted in 2010. using the cost-benefit analysis. In developed countries, the cost-benefit analysis is used in the evaluation of investments in the government (public) sector [14] Private companies evaluate their projects, taking into account only the effects that they receive [15]. In many developing countries, because of imperfect markets, cost-benefit analysis can be used for almost all investments [16]. Zerbe and Bellas [17] list the core principles of cost-benefit analysis: 1. Cost-benefit analysis believes that there is a difference in the contribution of individual projects and the overall social goals, and there is a difference in the effects of the individual project and the overall social standpoint. 2. Cost-benefit analysis should take into account all the benefits and costs, regardless of who actually en joys them. 3. Lost benefits should also be taken into account as costs. The benefits are costs reduction. 4. All benefits and costs should be established, modified and expressed in a monetary way. 5. In the use of cost-benefit analysis in imperfect markets (developing countries), corrected market prices (accounting prices) should be used. 6. Cost-benefit analysis is suitable for projects that deliver multiple effects that enjoyed by a broad range of users. 7. Cost-benefit analysis helps optimize the allocation of limited resources. Due to the fact that this research is conducted for the purpose of determining the cost-effectiveness of the investment project of introducing alternative energy sources in the RB Kolubara, the procedure of implementation of the cost-benefit analysis of investment projects proposed by the CBA Guide [18] consists of the following five steps: Management Journal for Theory and Practice Management 2012/64 Conversion of market prices into accounting prices Assessment of indirect effects Including indirect effects into calculations Discounting the estimated benefits and costs Calculation of economic indicators (economic NPV, economic IRR and economic B / C ratio). Key analyses used in this research are the following: feasibility and optional analyses, financial analysis and economic analysis of investment projects. Due to the fact that the Republic of Serbia is an imperfect markets, it is important to point out that the survey used corrected market prices, i.e., accounting prices. 3. Research Results Table 1 shows the optional parameters obtained by the analysis of the RB Kolubara, Lazarevac. Optional analysis was performed on the basis of the business of the Kolubara. The source of the data is the authors research into the business oprations of the RB Kolubara. Table 1: Optional analysis of Kolubara Optional analysis of Kolubara Option 1 - Do nothing The annual loss of 11 million euros Coal reserves decrease The need for permanent imports of electricity High level of pollution Permanent layoffs Option 2 - Small changes in current business Expansion of Mines - MZ Vreoci Investment costs - 2 billion euros Release of five thousand workers Coal reserves - maximum 50 years Loss identical to option 1 Option 3 - Do something   Electricity production from agricultural waste. Employing six thousand workers, reducing energy imports by 1%.  The results show that the option 1 shows the current business of the RB Kolubara that records a steady annual loss of 11 million euros, that coal reserves are being exhausted, which results in a permanent increase in electricity imports, in the increase in environmental pollution, but also in an ever larger number of lay offs. Option 2 suggests that the expansion of the mines in the Local Community of Vreoci increases investment costs, threatens with layoffs, coal reserves will be exhausted in another 50 years, which proves that option 2 is very similar to option 1 except that it means a short delay of the current problems. The results obtained in option 3show that, if the production of electricity uses renewable sources, the results will be hiring new employees, reducing emissions of harmful particles, as well as reducing energy dependence of RS. In order to solve the current financial problems a financial assessment of electricity production from biomass from agricultural waste was made, namely the financial analysis of option 3. Management Journal for Theory and Practice Management 2012/64 Table 2: Financial evaluation of the project of introducing biomass from agricultural waste Investment costs 351,208,236.00 euro Credit Net assets The interest rate per annum The average annual inflow years after repayment Financial payback from From investment returns Financial discount rate FNPV FRR 73.29% 26.71% 3.5% (repayment of 5 years with a grace period of 1 year) Around -9,000,000.00 euro Performed in the second year of investment 3.65% -427,973,763.90 euro -3.35% The financial results of the analysis indicate that the investment is not cost-effective in terms of financial evaluation of the project. The parameters that favour it are big investments, negative average annual flow after repayment of the loan. As indicated in the table, the score for profitability is performed in the second year of investment. The negative values of FNPV and FRR suggest that if the Kolubara shifts to exclusively alternative energy sources, and does not take into account the indirect effects of effectuation of investment, this investment project will not be profitable at all. Based on these criteria, the CBA was conducted and the results are shown in Tables 3 and 4. Table 3: Indirect effects of the investment in the project of introducing biomass from agricultural waste Cost of the project Investment expenditures + current investment costs 353,118,711.38 euro The average operating cost of the project per year + current operating costs / year Average outflows project / year About 18 million euro About 80 million euro Project Benefits / year Reducing electricity imports Reducing pollution caused by the emission of CO2 From agricultural farms Reducing expenses for the porpose of payouts Development of tourism in the municipality of Lazarevac Construction activity Reducing migration of rural population Total benefit per year Total revenue from the project RS / year 7,358,400.00 euro 3,489,034.86 euro 81,064,800.00 euro 2,000,000.00 euro 1,935,000.00 euro 15,457,377.90 euro 1,239,000.00 euro Approximately 144 million euro About 10 million euro (0.03% of GDP) Management Journal for Theory and Practice Management 2012/64 Table 4: Economic evaluation of the project of introducing biomass from agricultural waste Economic evaluation of investment returns From investment returns Economic discount rate ENPV ERR B/C ratio Performed in the second year of investment 12% 320,727,994.24 euro 1.28% 1.15 The results obtained in Tables 3 and 4 indicate that the project is cost-effective if the evaluation of profitability include all indirect effects. Indirect effects earn an income of 10,000,000 euros annually upon payment of the debt, which represents 0.5% of the total GDP of the Republic of Serbia. Positive parameters ERR and B / C ratio indicates that the investment project is profitable. 4. Discussion Based on the results obtained in this study it can be seen that the value of the electricity produced power alternative sources of energy is equivalent to that obtained from conventional sources of electricity. It is also proved that option 3, feasibility analysis, shown in Table 1, is the only possible. Namely, the current business operations at the RB Kolubara will generate further losses and will not solve any of the problems stated above. Taking into account the results presented in Table 2, it can be seen that the investment project is not financially viable, and that it produce losses of about 9 million. However, Tables 3 and 4 show that, if we take into account all the costs and benefits of this investment, the project is cost-effective according to all the crietria of investment-based decision-making, and that the expected returns on an annual basis over a period of investment amounts to 10 million euros per year. If we compare the results in the third and fourth tables it can be concluded that the difference in the annual benefit option 3 in comparison with options 1 and 2,as shown in Table 1, amounts to about 20 million gain on an annual basis. It can be concluded on the basis of the conducted CBA that this investment project is viable, and that it solves the current problem of the RB Kolubara. Conclusion The survey results, the use of CBA, indicate that the starting hypothesis, according to which the project is socially profitable, solves macro-economic problems of the region, and significantly reduces environmental pollution, is proven to be correct. It also proves that alternative energy sources pollute the environment in a considerably leeser degree, and that the energy potential of alternative sources of electricity is equivalent to conventional energy sources. It is further proven that the implementation of this technology will help restore ecological balance in the devastated areas and also help establish a balance of biodiversity. What is extremely important to note is that this technology is the basis of all other activities that bring indirect effects upon the planned projects in the RB Kolubara. The realization of the proposed project is to reduce energy imports by 1%. A multiplication of the effects has shown that the use of this technology can produce 5% of the electricity for the needs of the RS; furthermore, under a contract of permanent employment about 5% new jobs can be created for the unemployed RS and also jobs for about 50,000 seasonal workers. This is also the opportunity for cooperatives to hire workers. As the RS agreed to increase the share of renewable energy sources in the overall balance of production, these projects are very popular for the region of AP Vojvodina. Using the multiplication it has been calculated, that within the period of 45 years, using this technology, the production of electrical energy in RS will be produced in the amount of 62% of the total electrical energy the RS needs. Following the presented arguments as to why this investment project is viable, the subject of further research should be the development of a sensitivity analysis which would answer the question concerning the conditions under which, in terms of risk, this project should be fully implemented. Management Journal for Theory and Practice Management 2012/64 REFERENCES [1] Petrović N., Drakulić M., Vujin V., Drakulić R., Jeremić V., Climate change and green IT, Management, Vol. 16, No. 59, pp. 35-43, 2011. [2] Haščič I., Johnstone N., Kahrobaie N., International Technology Agreements for Climate Change: Analy sis Based on Co-Invention Data, OECD Environment Working Papers 42, OECD Publishing, 2012. [3] OECD, OECD Environmental Outlook to 2050: The Consequences of Inaction, OECD Publishing, 2012. [4] Mihić M., Petrović D., Vučković A., Obradović V., (cid:0)urović D., Application and Importance of Cost-Benefit Analysis in Energy Efficiency Projects Implemented in Public Buildings: The Case of Serbia, Thermal Science, Vol. 16, No. 3, pp. 915-929, 2012. [5] Mihić M, Vučković A, Vučković M, Management benefits of energy efficiency projects in public buildings in Serbia, Management, Vol. XVII, No. 62, Faculty of Organizational Sciences, Belgrade, pp. 57-65, 2012. [6] Brkić, M. i Janić, T, Biomass briquetting, Faculty of Agriculture Novi Sad, Novi Sad, 1999. [7] Boemare, C., Quirion, P. Implementing greenhouse gas trading in Europe: lessons from economic lit erature and international experiences, Ecological Economics, Vol. 43, No. 2-3, pp. 213-230, 2002. [8] World Commission on Environment and Development, Our common future. Oxford: Oxford University Press, 1987. [9] Jordanović Vasić, M, The use of biomass from agricultural waste as a renewable energy source, + Sci ence Practice, vol. 12, No. 1, pp. 60-63, 2009. [10] Velimirović, M., (cid:0)urić, A., Energy efficiency of utilization of biogas generated from anaerobic digestion of manure in Serbia Energy Technology, No. 1, pp. 27-29, 2009. [11] Regulation on emission limit values, the method and terms of measuring and recording. Official Gazette, No. 30, 1997. [12] Oka, S, The use of solid waste bio-mass for energy purposes, the Institute of Nuclear Sciences Vinca, Belgrade, Vinča, 1997. [13] Kukobat, M, The use of biomass to produce electricity, the Federal Ministry of Economics, 1998. [14] French, M. i sar., Benefit-Cost Analysis of Addiction Treatment: Methodological Guidelines and Empir ical Application Using the DATCAP and ASI, Health Serv Res, 37(2): 433455. 2002 [15] Mihić M, Petrović D, Vučković A, Possibilities of application of cost-benefit analysis of energy efficiency projects in buildings, Economic issues,Vol. 49,No.3, Faculty of Economics, University of Nis, pp. 355378, 2011. [16] Banfi S., et al., Willingness to Pay for Energy-Saving Measures in Residential Buildings, Energy Eco nomics, Vol. 30, No. 2, pp. 503-516, 2008. [17] Zerbe, R. and Bellas, A, A primer for Benefit Cost Analysis, Edward Elgar Publishing Inc, 2006. European commission: Guide to COST-BENEFIT ANALYSIS of investment projects, 2008 Receieved: April 2012. Accepted: September 2012. Management Journal for Theory and Practice Management 2012/64 About the Author Dragan Marković Faculty of management, Sremski Karlovci dragan.markovic@famns.edu.rs, Dragan Markovic M.Sc is assistant at the Faculty of Management at Sremski Karlovci. He gained teaching and scientific experience at the Faculty of Sports and Tourism in Novi Sad. His research interests include management, project management, strategic management, investment management and entrepreneurship. As a consultant he works with clusters, business incubators and development agencies in Serbia. Dejan Petrović University of Belgrade, Faculty of Organizational Sciences, Belgrade petrovic.dejan@fon.rs Dr. Dejan Petrović is associate professor and Head of Department of Management and Specilalized Management Disciplines at the Faculty of Organizational Sciences, University of Belgrade. He is also a visiting professor at several universities in the country and abroad. Marko Mihić University of Belgrade, Faculty of Organizational Sciences, Belgrade mihic.marko@fon.rs Marko Mihić is assistant professor at the Faculty of Organizational Sciences, Management Department. His research interest includes management, project management, strategic management and change management. He has published 7 monographs and over 80 peer-reviewed papers. 2012/64 Management Journal for Theory and Practice Management 2012/64 Ana Nikodijević, Jelena Anđelković Labrović, Aleksandar Đoković University of Belgrade, Faculty of Organizational Sciences Academic Burnout Among Students at Faculty of Organizational Sciences UDC: 159.944.4.072-057.875(497.11)2011/2012 DOI: 10.7595/management.fon.2012.0019 XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia Burnout is a widely recognized syndrome of emotional exhaustion, depersonalization or cynicism and reduced personal accomplishment that occurs in a broad spectrum of occupations, and in students as well. The objective of this research was to investigate the risk of burnout among students and to analyze the relationship between gender and grade point average with three dimensions of burnout. Maslach Burnout Inventory Student Survey, the most common instrument for measuring burnout, was used for this purpose as it was created and validated for student population. The research was conducted on a sample of 376 management and IT students in Serbia of the second to the final years of studies. The results show that 174 (46.3%) of the total sample of students are at risk of burnout, and 78 (20.7%) are at high risk of burnout. There is no significant correlation between gender and risk of burnout. There are higher percentages of students with low grade point average than students with high grade point average in both risk of burnout (54.4%) and high risk of burnout (26.6%) categories. Keywords: risk of burnout, high risk of burnout, students, grade point average (GPA), Maslach Burnout Inventory Student Survey (MBI SS) 1. Introduction Burnout is a widely recognized term in theory and practice that caught the attention of researchers almost 40 years ago. First researchers in the field, Freudenberger (1975) and Maslach (1976), based their work on the assumption that burnout occurs due to interaction between providers and receivers in occupations providing services and care (Maslach, Schaufeli, & Leiter, 2001). Later research has shown that burnout relates to other professional activities and occupations as well (Leiter & Schaufeli, 1996). The concept has also been extended to undergraduate and graduate students since studying has some characteristics of a job and students experience pressures while fulfilling academic requirements (Schaufeli, Martinez, Pinto, Salanova, & Bakker, 2002). A frequently used definition of burnout was offered by Maslach as a psychological syndrome of emotional exhaustion, depersonalization, and reduced personal accomplishment that occurs as a response to emotional and interpersonal stressors among individuals (Maslach & Goldberg, 1998). Burnout dimensions defined in such a manner reflect the focus on occupations with extensive interactions with people, while slight term modifications - emotional exhaustion, cynicism (a distant attitude toward the job) and reduced professional efficiency - are more appropriate to other occupations (Maslach, Schaufeli, & Leiter, 2001). Emotional exhaustion is the first reaction to the stress of job demands and basic element of the syndrome. Exhausted individuals feel emotionally and physically drained up, and unable to recover. Depersonalization or cynicism reflects negative responses to work and people at work with cold and distant attitude. The final dimension, self evaluation component of burnout reduced professional efficacy, is a state of ineffectiveness and loss of confidence in own abilities (Maslach & Leiter, 1997, pp. 17-18). All three dimensions respectively correspond to the level of energy (e.g. feeling used up), attitude (e.g. being cynical), and self-evaluation (e.g. doubting personal abilities) (Schaufeli, 2003). Burnout dimensions are defined in the same manner for student population and they refer to feeling exhausted because of study demands, having a cynical and detached attitude toward studies, and feeling incompetent and inefficient as a student (Schaufeli, Martinez, Pinto, Salanova, & Bakker, 2002). Moneta conducted a study in which he explored the links between the need for achievement, burnout, and intention to leave ones study program in undergraduate university stu Management Journal for Theory and Practice Management 2012/64 dents and concluded that burnout in educational settings has similar characteristics to those it has in occupational settings (Moneta, 2011). The first scale for burnout - Maslach Burnout Inventory (MBI) - Human Service Survey was developed for a wide range of human service professionals (Maslach & Jackson, 1981). Evolution in burnout research across different areas brought forth changes in the widely used scale and a development of several modifications: MBI Educators Survey (for workers in educational occupations), MBI - General Survey (for workers in occupations that are not entirely people-oriented) and MBI - Student Survey (for undergraduate and graduate students). The construct validity of MBI-SS has been acknowledged by previous researchers (Schaufeli, Martinez, Pinto, Salanova, & Bakker, 2002; Schaufeli & Salanova, 2007; Campos, Zucoloto, Bonafe, Jordani, & Maroco, 2011) and the criteria they used to validate the construct was the confirmatory factor analysis. Coefficients of internal consistency (Cronbachs alphas) have values above 0.70, signifying internal consistency, according to Schaufeli et al. (2002). In all this, previously mentioned research, MBI-SS was validated for following languages: English, Dutch, Spanish and Portuguese. Hu and Shaufeli validated the Chinese (Hu & Shaufeli, 2009) version and Shin et al. verified that MBI-SS is appropriate for application on Korean students (Shin, Puig, Lee, Lee, & Lee, 2011). A lot of studies of student burnout were conducted in the past. Perceived stress was positively correlated with all burnout dimensions (Divaris, Polychronopoulou, Taoufik, Katsaros, & Eliades, 2012). One of the studies investigated the association between gender and burnout subscales where the results showed that the risk of burnout is increasing with the year of study and that there is no significant correlation between gender and any of the subscales of burnout (Galán, Sanmartín, Polo, & Giner, 2011). Results of Adie & Wakefield (2011) suggest that burnout symptoms among students can be reduced by introducing autonomy supportive behaviours in order to facilitate engagement (Adie & Wakefield, 2011). To our knowledge, there were only few studies conducted in Serbia in the field of burnout. Most of them investigated risk of burnout in certain occupations: food industry (Aranđelović, Ilić, & Jović, 2010), medical staff (Ćurčić & Ćurčić, 2009) and military (Dedić, 2005). There was only one study on the student population with the aim to identify factors that might be associated with health related quality of life, including relationship with depression. Researchers concluded that among the factors that significantly influenced quality of life, depression was the most prominent (Pekmezovic, Popovic, Tepavcevic Kisic, Gazibara, & Paunic, 2011). With respect to previous research and shortage of scientific data for Serbia, the authors of this paper decided to explore three dimensions of burnout on a sample of management and IT students at Faculty of Organizational Sciences, using the MBISS construct and analyze the relationship between grade point average and gender and different burnout scales. 2. Method Participants in this survey were 402 management and IT students from the Faculty of Organizational Sciences, University of Belgrade in Serbia. Participation was voluntary and students were asked to answer a questionnaire and provide socio-demographic and other characteristics of participants. Each student was assigned numerical code in order to ensure anonymity. From these students, 26 did not answer the entire questionnaire and were excluded from the study. A convenient final sample of 376 students (93% response rate) consisted of equally distributed students of second to final years of studies. There were 159 male and 217 female participants. Maslach Burnout Inventory Student Survey was used for this purpose as it is a most widely used construct for assessing burnout. The construct consists of 15 items that represent three scales: exhaustion (5 items), cynicism (4 items), and professional efficacy (6 items). Individual items are scored on a 7-point frequency rating scale ranging from 0 (never) to 6 (always) and students were asked to indicate how often they felt in a certain way (e.g. for exhaustion: Studying or attending a class is really a strain for me; for cynicism: I doubt the significance of my academics; and for professional efficacy: I feel stimulated when I achieve my academic goals). Questionnaires were distributed to participants during the winter term of 2011/12 academic year after the lecturing period. The participants were informed about the aim of the study, but were not given any particular details. The researchers were not present in the classrooms at the time of answering the questionnaires and they collected them after completion. The reliability of MBISS was estimated through Cronbach alpha coefficient for internal consistency for all three dimensions of burnout. The coefficients were α=0.814 for exhaustion, α=0.868 for cynicism and α=0.773 for efficacy. Since internal reliability is assumed for correlation coefficients higher than 0.7 Management Journal for Theory and Practice Management 2012/64 (Cronbach, 1951), the results point out to a good internal consistency. Descriptive statistics was used to analyze the data (mean scores - M and standard deviation - SD). Afterwards, chi-square test was used to identify differences in gender and GPA on the three dimensions of burnout and independence sample t-test was used to determine differences between two group means. Statistically significant results were assumed for p<0.05. SPSS version 20.0 was used for all analyses. 3. Results and discusion The mean scores and standard deviation for three dimensions were calculated and they were 2.50 (1.08) for exhaustion, 1.05 (0.97) for cynicism and 3.92 (1.06) for professional efficacy. Scores for each subscale were organized in three groups: low, average and high, according to lower, medium and upper quartile of the score distribution (Galán, Sanmartín, Polo, & Giner, 2011). Therefore, lower and upper quartiles of all dimensions are: low exhaustion ≤ 1.83, high exhaustion ≥ 3.17; low cynicism ≤ 0.33, high cynicism ≥ 1.67; low efficacy ≤ 3.21, high efficacy ≥ 4.67. Our research defines burnout as a result of exhaustion, cynicism and efficacy, where high scores on exhaustion and cynicism and low scores on professional efficacy point towards student burnout. Most researchers (Galán, Sanmartín, Polo, & Giner, 2011; Willcock, Daly, Tennant, & Allard, 2004; Santen, Holt, Kemp, & Hemphill, 2010) identified the existence of burnout risk through at least one subscale of burnout as a sufficient indicator. Taking into consideration Schaufeli at al. (2002), risk of burnout exists when there is a high score on emotional exhaustion or high score on cynicism or low score on efficacy, meaning that high or low score on one dimension is a sufficient indicator for risk of burnout. (Schaufeli, Martinez, Pinto, Salanova, & Bakker, 2002). Furthermore, we wanted to identify students with high risk of burnout, and we formed an indicator for high risk of burnout. High risk of burnout represents high scores on emotional exhaustion and high scores on cynicism; or high scores on emotional exhaustion and low scores on efficacy; or high scores on cynicism and low scores on efficacy; or high scores on emotional exhaustion and high scores on cynicism and low scores on efficacy. Therefore, students were grouped into those with risk of burnout (with high/low scores on only one burnout dimension) and those with high risk of burnout (with high/low scores in two or three burnout dimensions). Table 1 shows that 88 (23.4%) students had high score in exhaustion, 83 (22.1%) had high score in cynicism and 94 (25%) had low score in efficacy. Also, table 1 illustrates that 174 (46.3%) of total sample of students are at risk of burnout, and 78 (20.7%) are at high risk of burnout. There are no data regarding acceptable levels of risk of burnout, but it can be concluded that 46.3% is an extremely high percentage, according to which almost every other student is at risk of burnout. Table 1: Burnout dimensions and number of students at risk of burnout Subscales Exhaustion Low Moderate High Cynicism Low Moderate High Efficacy Low Moderate High Risk of burnouta High risk of burnoutb Students Number  % 28.2 48.4 23.4 33.2 44.7 22.1 25.0 50.3 24.7 46.3 20.7 a Burnout - high score on emotional exhaustion or high score on cynicism or low score on efficacy b Burnout - high score on emotional exhaustion and high score on cynicism; or high score on emotional exhaustion and low score on efficacy; or high score on cynicism and low score on efficacy; or high score on emotional exhaustion and high score cynicism and low score on efficacy Management Journal for Theory and Practice Management 2012/64 Table 2 shows that 34 (21.4%) out of 88 students who had high score in exhaustion were male and 54 (24.9%) were female. 42 (26.4%) out of 83 students who had high score in cynicism were male and 41 (18.9%) were female. There is no significant difference on a burnout subscale of exhaustion between genders, either in total sample or in the high scored group. There are significant differences between genders on a cynicism and efficacy subscales. It is interesting that there are no differences between male and female students in a group of students with high risk of burnout. Previous research showed conflicting results. Some of them showed that there is no significant correlation between gender and any of the subscales of burnout. (Galán, Sanmartín, Polo, & Giner, 2011; Bresó, Salanova, & Schaufeli, 2007). Others showed that there is a difference between genders on different subscales of burnout (Willcock, Daly, Tennant, & Allard, 2004; Yang, 2004; Weckwerth & Flynn, 2006). Therefore the consensus among researchers on this issue does not exist. Table 2: Differences in risk of burnout between male and female students Subscales Exhaustion Mean (SD) High score, no (%) Cynicism Mean (SD) High score, no (%) Efficacy Mean (SD) Low score, no (%) Risk of burnout High risk of burnout Students Male 2.46 (1.06) 34 (21.4%) Female 2.58 (1.10) 54 (24.9%) 1.22 (1.02) 42 (26.4%) 0.93 (0.92) 41 (18.9%) 3.77 (1.11) 51 (32.9%) 81 (50.9%) 37 (23.3%) 4.04 (1.01) 43 (19.8%) 93 (42.9%) 41 (18.9%) p 0.487 0.554 0.004 0.004 0.018 0.025 0.120 0.301 For the purposes of this research, we defined low GPA as a grade below 8.00 and high GPA as grades 8.01 or higher (Lowest grade a student can get for passing the exam in Serbia is 6 and highest grade is 10). Table 3 shows that 38 (22.5%) out of 88 students who had high score in exhaustion had a low GPA and 50 (24.2%) had high GPA. 46 (27.2%) out of 83 students who had high score in cynicism had a low GPA and 37 (17.9%) had a high GPA. 61 (36.1%) out of 94 students who had a low score in efficacy and a low GPA and 33 (15.9%) had a high GPA. There is no significant difference on a burnout subscale of exhaustion between students with low or high GPAs. There is a significant difference between students with low and high GPAs on a cynicism and efficacy subscales. Especially important is the influence of efficiency on a students GPA for the total sample. In some of the previous research authors found that students who had highest GPA scores and positive self-esteem didnt experience burnout (Jayoung, Puig, Kim, Shin, Lee, & Lee, 2010). In another research where MBI construct was used, GPA was significantly correlated with emotional exhaustion but not with depersonalization or personal accomplishment (Jacobs & Dodd, 2003). Considering the risk of burnout, it is shown that 54.4% of students with low GPA are at risk of burnout and 26.6% are at high risk of burnout. There is a significant influence of GPA on a risk of burnout and on high risk of burnout. Management Journal for Theory and Practice Management 2012/64 Table 3: Differences in risk of burnout between students with low and high GPA Subscales Exhaustion Mean (SD) High score, no (%) Cynicism Mean (SD) High score, no (%) Efficacy Mean (SD) Low score, no (%) Risk of burnout High risk of burnout Students Low GPA High GPA  2.43 (1.13) 38 (22.5%) 2.56 (1.04) 50 (24.2%)  1.17 (1.02) 46 (27.2%) 0.96 (0.92) 37 (17.9%) 3.63 (1.04) 61 (36.1%) 92 (54.4%) 45 (26.6%) 4.16 (1.01) 33 (15.9%) 82 (39.6%) 33 (15.9%) p 0.241 0.736 0.032 0.05 0.0001 0.011 0.004 0.011 Detailed examinations of student GPAs found that students in risk of burnout have GPA of 8.11 and those that are not at risk have a GPA of 8.35. Therefore, there is a significant difference in GPAs between two groups of students (t (374) = 2, 385, p = 0,005). The GPA of students with high risk of burnout is 8.04, while those who are not in this group have a GPA of 8.29. There is a significant difference between these two groups as well (t (374) = 2, 426, p = 0.016). Conclusions (and future research) The main results from this study show that the risk of burnout is widespread in management and IT students in Serbia. Almost 50% of participants are at risk and over 20% of them are at high risk of burnout. There were no differences found between genders. Grade point average was found to be an important predictor of risk of burnout. Data on several other demographic and other characteristics of students were gathered in the course of this research. Some of them were not considered in this paper, but might be significant for risk of burnout in student population. Therefore, authors of this paper will include current year of studies, field of studying (management or IT), source of financing (government budget or self-financing), employment status (unemployed, part-time workers and full-time workers), hometown, and amount of time dedicated to learning activities and class attendance in their future research. Since we have concluded there is a significant difference in risk of burnout between students with high and low GPAs, it might be interesting to analyze the relationship between GPA and some other characteristic of students. Likewise it would be useful to conduct a national study on risk of burnout using the entire student population in Serbia, and not just management and IT students at Faculty of Organizational Sciences. REFERENCES [1] Adie, J., & Wakefield, C. (2011). Perceptions of the Teaching Environment, Engagement and Burnout among University Students on a Sports-related Degree Programme in the UK. Journal of Hospitality, Leisure, Sport and Tourism Education , 10 (2), 74-84. [2] Aranđelović, M., Ilić, I., & Jović, S. (2010). Burnout and the Quality of Life of Workers in Food Industry a Pilot Study in Serbia. Vojnosanitetski Review , 67 (9), 705-711. [3] Bresó, E., Salanova, M., & Schaufeli, W. B. (2007). In Search of the Third Dimension of Burnout:Efficacy or Inefficacy? Applied Psychology: An International Review , 56 (3), 460478. [4] Campos, J., Zucoloto, M. L., Bonafe, F., Jordani, P. C., & Maroco, J. (2011). Reliability and Validity of Selfreported Burnout in College Students: A Cross Randomized Comparison of Paper-and-pencil vs. Online Administration. Computers in HUman Behavior , 27, 1875-1883. [5] Cronbach, L. J. (1951). Coefficient Alpha and the Internal Structure of the Tests. Psychometrics , 16, 297 334. Management Journal for Theory and Practice Management 2012/64 [6] Ćurčić, Đ., & Ćurčić, M. (2009). 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Personality and Individual Differences , 50, 274278. [19] Pekmezovic, T., Popovic, A., Tepavcevic Kisic, D., Gazibara, T., & Paunic, M. (2011). Factors Associated with Health-related Quality of Life among Belgrade University Students. Quality of Life Research , 20, 391397. [20] Santen, S. A., Holt, D. B., Kemp, J. D., & Hemphill, R. R. (2010). Burnout in Medical Students: Examining the Prevalence and Associated Factors. Southern Medical Journal , 103, 758763. [21] Schaufeli, W. B. (2003). Past Peformance and Future Perspectives of Burnout Research. Journal of Industrial Psychology , 29 (4), 1-15. [22] Schaufeli, W. B., & Salanova, M. (2007). In Search of the Third Dimension of Burnout: Efficacy or Inefficacy. Applied Psychology: An International Review , 56 (3), 460-478. [23] Schaufeli, W. B., Martinez, I. M., Pinto, A. M., Salanova, M., & Bakker, A. B. (2002). Burnout and Engagement in University Students. Journal of Cross-Cultural Psychology , 33 (5), 464-481. [24] Shin, H., Puig, A., Lee, J., Lee, J. H., & Lee, S. M. (2011). Cultural Validation of the Maslach Burnout Inventory for Korean Students. Asia Pacific Education Review , 12, 633-639. [25] Weckwerth, A. C., & Flynn, D. M. (2006). Effect of Sex on Percived Support and Burnout in University Students. College Student Journal , 40 (2), 237-250. [26] Willcock, S. M., Daly, M. G., Tennant, C. C., & Allard, B. J. (2004). Burnout and Psychiatric Morbidity in New Medical Graduates. The Medical Journal of Australia , 181 (7), 357-360. [27] Yang, H.-J. (2004). Factors Affecting Student Burnout and Academic Achievement in Multiple Enrollment Programs in Taiwans Technicalvocational Colleges. International Journal of Educational Development , 24 (3), 283-301. Receieved: April 2012. Accepted: September 2012. Management Journal for Theory and Practice Management 2012/64 About the Author Ana Nikodijević University of Belgrade, Faculty of Organizational Sciences nikodijevica@fon.bg.ac.rs Ana Nikodijevic is a teaching assistant at Faculty of Organizational Sciences, University of Belgrade, in department of Human Resource Management. She teaches courses in the area of organizational behavior, including group dynamics, teamwork, leadership and interpersonal relations. She is the author and/orco-author of more than 20 papers published in journals and conference proceedings. Jelena Anđelković Labrović University of Belgrade, Faculty of Organizational Sciences jeca@fon.bg.ac.rs Jelena Anđelković Labrović is a teaching assistant at Faculty of Organizational Sciences, University of Belgrade, Human Resource Management Department. She teaches following courses: Training and Development, E-Learning, Human Resource Management and International Human Resource Management. She is the author and/or co-author of more than 15 papers published in journals and conference proceedings. Aleksandar Đoković University of Belgrade, Faculty of Organizational Sciences djokovic@fon.bg.ac.rs Aleksandar Djokovic is a teaching assistant at Faculty of Organizational Sciences, University of Belgrade, in department of Computational Statistics. He teaches courses in the area of Theory of probability, Statistics, Linear statistical models, Data analysis and Biostatistics. He is the author and/or co-author of more than 20 papers published in journals and conference proceedings. 2012/64 Management Journal for Theory and Practice Management 2012/64 Mirjana Petković1, Snežana Lazarević2 1Faculty of Economics, Belgrade, 2College of Sports and Health, Belgrade Managing Interorganizational Relations: Design of Shared Services Centre UDC: 005.52:005.56 ; 005.7 DOI: 10.7595/management.fon.2012.0024 This paper analyses interorganizational relations and interorganizational design as a means to manage those relations. The focal point of analysis is the design of Shared Services Centre-SSC, by using a method of Workflow Management, WFM. The authors point out strategic and organizational, political, technical and economic motives for establishing SSCs. The paper also describes a conceptual model and process of designing SSC. Keywords: interorganizational relations, interorganizational design, shared services center, workflow management, SSC design model. 1. Introduction In the todays environment, extremely complex due to dramatic changes triggered by informatization and globalization, organizational design has gained in importance and become one of the most important tools in managers programs, which they implement to improve the organizational operations and make their organizations more competitive. These are the times when knowledge has become a key resource, namely, when organizations are exposed due to lack of information, ignorance and non-standard inputs, processes and outputs. Integration of organizations into groups (partnerships, alliances, networks, kairetsu, clusters, etc.) becomes imperative. It is obvious that companies open to collaboration as well as to competition; they have learnt to co-evolve with others and thus adjust to change successfully[1]. Their essential goals are to save resources and access information and new knowledge without endangering the reliability of output and to save information that is part of business secret and is not subject to transparency. The preconditions for these are two strategic choices of design: (1) efficient design of interorganizational relations, and (2) redesign of interior organization for the purpose of allocating certain jobs onto the level of the group (partnership). The former choice is meant to ensure a necessary firm structure for forming partnerships (shared services center, crossorganizational team) which will formalize organizational relations, professionalize their management and give them the necessary legitimity. Trust between partners in these relations is important, however, it is not sufficient to ensure the standardization of the process and the reliability of inputs or outputs. The latter choice is meant to identify the processes that should be transferred from the company level to the level of partnership, or that should be introduced if they have not existed before and are important for the partnership. It is in this way that, through an integration of resources and competencies, interorganizational processes contribute to an efficient business process management, to sharing information and knowledge. Global competition becomes a strategic reason for the companies to integrate. The goal of this paper is to point out to the inevitability that interorganizational processes be managed, as well as to the possible design of an organizational unit for shared (services) functions, through which interorganizational relations are operationalized and controlled (shared services centre)[2]. For the interorganizational relations to be successful, certain structural, technological and socio-technical preconditions have to be ensured, and this is the starting point of the authors of this paper. The paper is theoretical in nature and is based on the literature which offers not only theoretical papers, but also papers based on empirical research conducted implementing the case study method [3]. Primarily, the nature of interorganizational relations will be explained, when and why they are established; then the authors will highlight the importance of organizational/interorganizational design in order to find out how important it is that these relations should be formalized. Then the focus of the analysis will be directed onto the service unit design in terms of what can be concentrated on the level of partnership and how it can be performed without endangering the core business in the process, and show that, in addition to form, interorganizational relations should involve certain concrete contents (activities). Management Journal for Theory and Practice Management 2012/64 2. Interorganizational relations An important lesson learnt by modern organizations can be sublimed into an attitude that an organization has to cooperate with others, not only with suppliers and customers, but with the competition too. A large number of activities in the value chain are not profitable enough for certain organizations; hence it is viable to outsource them to other organizations, often even to the competition, with which they make different forms of interorganizational design (networks, alliances, kairetsu, cluster, etc.). [4] The trend of interorganizational integration is especially stimulated by the need for continual innovation, improvement and adjustment of the output to the market requirements and the customers expectations. Organizational specialization and focusing upon certain activities in the value chain results into a higher productivity, higher quality and lower costs. These are the basic drivers of organizational competitiveness and organizations can hardly achieve them on their own, especially not in the globalized market[5]. In search of new strategies of survival and successful business managers have found solution in organizational partnerships, that is, in interorganizational integrations[6]. The practice of integration and cooperation among organizations on various grounds is not new to either management or organization. Most frequently these were different types of contractual relations, sales, franchising, joint venture, etc. Their basic characteristic was their short-term character and a high level of independence of contracting parties[7]. In modern conditions, the nature of interorganizational relations is substantially different; relations are established with certain long-term interests in mind and have an impact upon the inter- and intraorganizational design of the organizations involved in these relations. These new forms of cooperation, too, are supported by contracts that are considerably more important than sales, franchise or licencing agreements[8]. They stipulate concrete goals, on the input, as well as on the output sides. The inputs the member-partners introduce into the relations are specific resources each of the individual members have at disposal, such as: facilities, technology, people, knowledge, market, etc. The outputs are actually the reason they establish such relations, and they can be: innovation, productivity, quality, learning, new technologies, new markets, higher standard of living of both the employees and citizens. In other words, interorganizational relations can be said to be an efficient strategy of concentrating the resources in order to improve the competitiveness of the members and the living standard of the population.[9] Thus modern organizations have recognized in interorganizational relations a new strategy for successful operations on the globalized market. This strategy has become both a challenge and a driver of the development of internal capacities of organizations for a continual growth and development. This all resulted into a massive internal redesign of organizations in order that they should be relieved of the activities and jobs from the value chain for which they are not competent or lack competitive resources. This process has brought forth the reductions of the number of employees and the change in the organizational pattern.[10] Interorganizational relations are recognized as a new source of organizational growth and development, on one hand, and of reducing the organization to an optimum level in order that it should be more efficient, on the other. The key issue for interorganizational relations to produce the effects for the purpose of which they have been established is how they should be managed. Managers are faced with the choice of organizational design as a central issue of interorganizational relations management.[11] 3. Organizational and interorganizational designs Organizational design is a management process that involves defining of the strategy as a starting decision of any organizations management, defining organizational structure whose numerous dimensions are meant to support the strategy, defining the systems and processes that start the entire organizational architecture and guide it in the direction defined by the strategy. This means that organizational design is a management lever (tool) used to achieve a balance between effectiveness and efficiency in order that given resources should be used to achieve the right outputs. With a good choice of solutions in the organizational designing process managers achieve more success and better performance in comparison with their competition. When a quality internal organizational design is created, the organization becomes attractive for forming partnerships with similar organizations, since no accountable management wants partnerships with organizations burdened with problems and irrational solutions. This is a basic principle of success of any attempt of organizational integration, recognized in varied forms of partnerships: joint ventures, company groups, networks, alliances, clusters, etc. Management Journal for Theory and Practice Management 2012/64 Ever since it began to deal with the problems of an efficient organization, the theory of organizational design has predominantly been focused upon the issues of internal organization in order that available resources should be rationally employed: job design, job classification, job grouping, chain of command, coordination and control. With the development of different forms of interorganizational relations, the theory of organizational design has more or less successfully followed these trends and tried to offer adequate solutions. It has become clear that organizational design is strategically important for any organization, that it is the central issue of management, that the choice of design models are strategically important, because organizational design can add or reduce value for shareholders, employees and customers.[12] The key features of organizational design that make it a strategic dimension of management are flexibility and absorbtivity. The former enables organizations to introduce change to adjust to the environment, the latter enables organizations to learn, adopt and offer knowledge. Well designed organizations are capable of both exploitative and explorative behaviour, namely, of both stability and dynamism; their designs reveal features of an ambidextrous organization.[13] Ambidextrous structures have proven to be highly suitable for the innovative organizational behaviour, especially in situations when they wish to retain in their portfolios a recognizable brand that records the fall in the returns to engaged assets, and find solution in setting up a separate organizational unit that becomes the owner of the new brand.[14] Any kinds of organizations may decide to enter into partnerships in a situation in which they realize that they are unable to carry out a concrete business enterprise by themselves, for market, technological or any other reasons. Hence the leading strategic goal of forming partnerships is attracting resources to create value for partners, in a manner and to the extent to which they themselves could never accomplish through their individual efforts. Interorganizational cooperation means establishing concrete relations via certain forms of interorganizational design (IOD). As a rule, creating an IOD form means that partners redesign their internal organizations since only in this way can value be added to a newly created structure and its components, intra- and interorganizational units, most often a form of network forms.[15] On the interorganizational level, an efficient design should have effects similar to those it has on an intraorganizational level. Thus it is possible to distinguish among different forms of IOD, in that they differ in the ways in which they contribute to the success and competitiveness of their members, support learning, knowledge transfer, innovativeness and entrepreneurship. As well as it is important for large and complex organizations to ensure focus and leverage by an efficient design that has a firm and recognizable architecture, it is also important for groups of organizations (interorganizational networks IOM) to create an efficient external design alongside their efficient internal design, namely, to define relatively firmly structured and institutionalized organizational units that are to take over and integrate activities of mutual concern for the IOM member-organizations. It means that interorganizational relations that are expected to give concrete results have to be supported by an adequate organizational design that would be visible in a concrete form (network, kairetsu, alliance, cluster) and would have a professional superstructure in the form of an integrating unit or centre (shared services centre).[16] In accordance with this approach it is possible to create a model of interorganizational relations that will depict the importance of interorganizational design, or an integrating unit or centre whose task is to ensure coordination and integration of partners in interorganizational relations (see Figure 1). Coordination and integration are the key preconditions of successful partnership and a guarantee that partnerships goals will be achieved. 4. Shared services center concept Historically, the concentration of resources, both human and material, on the top organizational level is associated with the practices of large diversified and divisionalised companies during the 1960s and 1970s. Namely, the increase in the company size and a new strategy of growth and development (diversification) brought forth the organizational environment which demanded that the theory of organizational design provide solutions to new issues of organizational designing. For example, the manner in which the complex structure of large companies can be integrated and how the operations of complex organizational systems can be controlled. Different theoretical approaches emerged that offered solutions to certain situations. The starting criterion in the core of these approaches is a form of interdependence of business the members of the complex structure perform, so that we deal with a situation in which they are vertically integrated and interdependent, and also with another situation in which they are integrated horizontally. Similarly, companies may enter into partnerships even when there are no clear vertical nor horizontal connections, however, they have found a certain mutual interest, on the basis of either capital, knowledge, technology, people, market or other. Management Journal for Theory and Practice Management 2012/64 The shared service activities centre is a relatively new phenomenon that has become the focus of attention of the authors in the area of organizational design only in early 1990s, with the intensification of the trends in the areas of informatization, globalization, deregulation and transformation of complex organizations. The concept of organization of shared functions is not new, however, that of shared services centre (SSC) is. These two concepts differ in their approach to the very issue of positioning service activities in relation to the core activities of the company, as well as to the form of their design. The concept of shared functions has long been based on a theoretical perspective of the administrative structure of a firm and the theory of transaction costs. This concept advocates the centralization of shared jobs and is engaged in making make or buy decisions; basically, it created the functional structure. The concept of service centre is based on a value chain and resource perspective[17] according to which the company is viewed as a storage of resources and competences that ensure competitive advantage and basically advocates the process structure in which core or primary processes are differentiated from non-core or supportive processes. Core processes are organized in a basic model of structure, functional of divisional, whereas supporting processes are organized in a derived forms of the structure, the so-called superstructure, based on expert groups and teams. According to the resource theory, a firms competitive advantage lies in managerial processes or routines that shape specific assets whose accumulation depends on the path within the organization or between/among organizations.[18] The concept of shared services center is based on the concentration of resources, rather than on the centralization of functions. Centralization in the concept of organizing shared functions results in forming a head office that is often viewed as isolated and nonresponsive to clients, while decentralization is identified with doubling activities and costs. On the other hand, the SSC model allows for business units to retain decision-making control, while at the same time using the economy of scope via shared business systems and consistent standards. The goal in forming SSCs is to save costs and gain access to resources, on one hand, and to allow partners the time to focus upon core business, on the other. Similarly, the role of a SSC is to coordinate activities via standardization of flows of resources, services and information provided by interdependent partners. In order that this concept and its idea should be understood, it is necessary that we know that in their development companies had different experiences and that the concept of SSC is similar to that of outsourcing. Through a vertical integration the companies originally internalized a large number of processes of the front-office and back-office of the value chain, while diversification made it possible for them to develop or take over the jobs complementary to their core business.[19] Not all companies, however, internalized to the same extent, nor did companies in different national context behave in the same way. Thus, for example, American companies tended to internalize to a larger degree in comparison to their European competition.[20] Similarly, the regional concentration of resources was in favour of externalization, where large corporations were in a position to rely on other, smaller firms in their procurement of resources.[21] Different companies internalized and externalized service processes, not only in different degrees, but different service processes as well. Many even combined these two strategies. The mid-1980s witnesses the emerging of a trend of creating network forms (net organization N form) and the so-called heterarchies in order to preserve companies internal capability of performing business in which they excell, while outsourcing non-core business to others that are highly professionalized in performing them. In the outsourcing concept one company becomes a client to several service providers (suppliers); it becomes the network core around which gather network members, numerous suppliers of components, services and other inputs the company previously produced itself. Such an approach had numerous advantages, however, it had a lot of disadvantages as well. Those who suffered most were the manufacturers in the field of automobile industry and the industry of household appliances, due to erratic standards, lack of trust and disregard of rules and regulations.[22] Changes began in mid-1990s. Many large corporations that de-diversified and relieved themselves from the so-called unrelated jobs find more reliable methods of improving their competitiveness, raise productivity, rationalize costs, ensure the reliability of inputs and the access to markets to place their outputs. Managers have recognized new capabilities of information technology (IT) that makes conditions for establishing firm interorganizational relations via forming a shared services centre. The logic in the concept of SSC differs from that of outsourcing. The SSC is the core of the network, one service supplier that provides services to a number of clients, members of the network. Many companies are restructured due to the managers motivation to find a new growth strategy. They redesigned their internal organization in that they redefined their processes and diversified their corporate functions according to the criteria set by the value chain and the theory of resources (see Figure 1). To create an effective SSC that would optimize benefits for the IOM members, it is necessary that each of them should redesign their internal organizations. The conceptual frame for designing interorganizational relations are shown in Figure 1. Management Journal for Theory and Practice Management 2012/64 Figure 1: Conceptual frame for designing SSC (Source: Authors) The manner in which interorganizational relations are defined largely preconditions the success of the enterprise. Interorganizational design means defining interorganizational integrations that exist between the organizations that established these relations. These relations will be firmer if the partner clearly defined the activities that are to be performed as their mutual activities and that will also be formally organized within a separate organizational unit SSC. This issue can by no means remain only a formal one. The SSC has to have its own management, its operations have to be legally defined and it has to have its own budget. Interorganizational design should ensure the partners a flexible manner in which they will achieve a variety of organizational goals, which means that this form of integration is expected to provide a high level of sharing information, knowledge, contacts and other resources. This means that partners define activities or only sections of certain business processes that will be allocated to the level of a new entity created through their integration. Simultaneously, partners have to strategically profile and design a shared unit, having in mind the benefits they will achieve by its forming. This means that it is necessary to do considerably more than produce a simple description of the job it will perform and the roles it will play. The basic question is whether and in which way the shared services unit (SSC) will increase or add value to the members.[23] In order that the SSC should be efficient and ensure long-term steady competitive advantage for the partners, it is necessary that each of them redesign their processes. The starting point is the organizational pattern and its redefining; this is a strategic issue for complex organizations with diversified programs, those that operate beyond national borders. Globalization of business imposes new models of organizational structure. The basic models characterised by an organizational symmetry yield to hybrid, asymmetric models that answer differentiated needs of markets, of geographical areas, and of national cultures. The design of interorganizational relations, considerably more than the design of internal organization of each individual company, requires that the structure of these relations be viewed not through an organizational pattern as a visual form but rather as a system of communications and processing information between those employed in the centre and their colleagues in organizational units dispersed all over the world, that together make an international network of a complex organization.[24] It is in this sense that designing a SSC requires an additional effort to create and implement a culture based on trust, respect for differences and observing of standards, alongside SSC structuring. The core component in the designing of the unit (centre) on the IOM level is the strategy that views this unit as a way to achieve long-term savings of the costs of conducting certain processes for the benefit of all the members, of achieving synergy effects via a value added through collaboration, sharing of knowledge and of marketing and other information. Each member of the network is both the founder and the shareholder, that is, owner of the shared unit and hence participates in its management. Each member does the business in which they are the best, namely, for which they have core competence, so that all the members in the IOM get the non-core processes, or support, form the shared organizational unit. Thus a new work and technological environment is formed in the IOM that is relieved of all burdens, irrationalities and lack of competences and a sound and quality business environment is established.[25] Management Journal for Theory and Practice Management 2012/64 The crucial conceptual issue in designing the model of shared jobs is the distribution of costs among the partner organizations. Namely, a mutual agreement must be achieved as regards the division of costs for the group of shares services. The essence of the solution is that each partner organization has to bear part of the load in that it will participate in saving, but also fund costs. For the purpose of an effective management of shared processes (services), certain organizational and legal acts have to be adopted (statute, codes, rulings) in addition to the cost distribution defined by the contract, acts that define the rules and procedures to regulate the manner in which the services provided by the centre will be used, the authorised persons and the manner in which the authority is used (further elaborated in chapter 5). 5. implementation of workflow management (WFM) in SSC designing process Literature suggests that the analysis of interorganizational processes will benefit from implementing a workflow management (WFM) methodology.[26] In a new organizational environment, work does not only mean manufacturing of tangible goods, but also the flow of information through the value chain. Information flow has become critical for the companys business processes and aroused a lot of interest in the methods of information-intensive workflow defining, analysis and management. Workflow management (WFM) is defined as a technological support in redesigning work, business and information processes, as a technique of organizational change and a technique of process redesigning. To implement this technique, organizations need to have a well organized informatized work environment, and this precondition is the very basic presumption for forming an IOM, which proves that the WFM technique can be highly useful in an SSC optimization.[27] Workflow designates a process consisting of a succession of connected steps with the focus on a continual flow of work where each step derives from the previous one, without pause or idle run.[28] Traditionally, workflow management was viewed as a methodological technique oriented towards processes within one organization. In situations in which two or more companies collaborate closely, when they pool efforts and become a network of interdependent processes, however, the systems of workflow management in different organizations integrate to manage interorganizational processes in heterogeneous workflow environments. While the classic organizational pattern, job classification and description are associated with an individual that plays a certain organizational role, the WFM technique is used to design a process in whose realization one or more incumbents may participate, depending on the approach to distribution and integration of process tasks and the assignments defined within individual instances of the process.[29] In a nutshell, workflow management technology can raise efficiency, flexibility and adaptability of both internal organization and interorganizational forms. Besides, WF systems are by an in-built process control mechanism so that each partner can control their own resources and activities, however, none of them has access to the control systems of their partners. Even in the conditions of incomplete transparency beyond organizational boundaries the WF system ensures the continuity of processes and prevents job doubling, which is an important motive for forming a shared service centre. SSC designing by implementing WFM helps establish the business process owner user relations. The SSC becomes the owner of business processes that partners allocated to the centre, while partners cease to be the owners and become the users, or participants in the business process. The existence of shared functions in interorganizational relations is by all means important because of the need to standardize processes and share knowledge and information. Organizational unit of shared functions is a specific tool for coordination and integration of members and as such should be a component of the plan for establishing interorganizational relations. Recognizing the importance of this issue, certain authors also attempted to define possible organizational solutions to the shared functions on the partnership level.[30] Common to all efforts is that they insist on a special organizational unit meant to accomplish shared functions, on its optimum size, professional profiles of its members, management bodies and budget to support its operations. Its adequate size should be in accordance with the value it adds to the members. This requirement in the conditions of organizational informatization is not difficult to satisfy, as information technology and electronic communications enable forming virtual organizational units (virtual work groups, virtual teams). What may prove to be a problem in partnership practice which is more difficult to solve is related to budgeting and control, that is, to finance sources and financial discipline of the partners. Here belong additional issues of behavioural nature, the issue of trust, as well as an emotional issue, the issue of emotions, both the core components of the members commitment to partnership. Hence the trainings of employees, managers and non-managers, make a component part of the interorganizational relations and SSC designing processes. The purpose of the training programs is to prepare the employees in companies Management Journal for Theory and Practice Management 2012/64 to adopt change in two groups of activities that, with a strategic orientation towards process sharing, help them adopt different attitudes and behaviours. One group involves ongoing activities, whereas the other involves the activities in the SSC strategy implementation. In case of ongoing activities, training includes those employees who are expected to understand and adopt the new reality that they will no longer perform activities they have performed so far because these activities are allocated to the centre, as well as that they should stick to the agreement made and be responsible for performance. For the needs of implementation, training includes managers who are expected to learn about the new strategy, organization, systems and processes, especially new leadership and culture. The experience of successful partnerships shows that they operate on the model partners created, either spontaneously, working together for years, or through the creative activities of experts that carefully planned the solution in the process of designing interorganizational relations. Literature does not offer many sources that can describe an efficient method, model or formula for designing shared activities on an IOM level. In accordance with the orientation that a new entity administration should not be voluminous and burdening for partnership members, it seems that workflow management methodology and technique is a good solution to implement in the process of interorganizational relations designing.[28] This means that the essence of this technique is reflected in reconsidering the processes and in the analysis of the processes. The analysis is to reveal the connections and relations between the core processes of each of the members in the partnership and the shared activities allocated to the IOM level, as well as the nature of the relations among/between the members; it is a sort of process analysis or reengineering of interorganizational relations. Workflow management allows for partner-organizations to share knowledge on shared services, however, it simultaneously protects one from another, so that they should not have insight or come into possession of information that is not to be shared. 6. SSC designing model Basically, the model of SSC designing involves three groups of issues:[26] (a) design of partnership, (b) design of optimized shared functions and (c) design of policies and regulations. For interorganizational relations to be successful there are other issues that are important too, and these primarily are the issues of concord between organizational cultures, of leadership style, human resource management, etc. In this sense, the model of interorganizational relations designing involves a set of concrete elements (Figure 2).[26] (1) partnership environment, which means that there is a potential for integrating functions recognized by prospective partners, as well as a necessary level of their informatization; (2) partnership organizations that recognize interorganizational relations as a long-term low cost strategy, a long-term alliance and focus upon core functions; (3) integrated partners networking, partners networked through interorganizational relations, and then interorganizationally, via a shared functions centre ; (4) optimum centre size, according to the activities it performs and the number of employees; and (5) new policies and regulations that regulate management, costs distribution, ethics and rules of using the centres services (Figure 2). It is the SSCs responsibility to maintain and improve the effect of the services it provides to the partners, to develop and improve the integration level among the partners, so that they get used to using shared functions and avoid simultaneously developing the same ones on the same levels. In other words, once established SSC becomes the agent of service processes, however, also a coordinator and a supervisor of an efficient use of resources on the network level. According to the SSC concept, companies partners of the centre externalize their supporting (service) activities and allocate them to the centre that in turn, as a provider of services, forms a network with them. Then its internal organization, a service provider to several partners, takes on the form of an intraorganizational network. Thus, for example, a SSC may specialise in providing services to partners in the areas of human resources, financial, tax and legal consulting, IT, market research, investment consulting, but also in the area of production etc. Its founder-companies are integrated in interorganizational relations, in a form of alliances, networks, etc., and then they establish relations with the centre stating clear and concrete expectations and goals. The efficiency of the centres operations will depend on its organizational design that should be created in such a manner as to conform to the combined criterion of a process and a user, namely, set up in a flexible way so that it is adaptable enough to track information flows, and capable of using the expertise of the employees to track the needs of the partners. Management Journal for Theory and Practice Management 2012/64 Figure 2: Conceptual model of organizational design for shared services (Source: Wang S., Wang H.,Shared services beyond sourcing the back offices: Organizational design, Human Systems Management 26, 2007, pp 288, 2007) Hence the interior architecture of the SSC will take the form of a organic design models, most often the matrix, in which the functions (process agents) allocated to the centre by the partners are presented horizontally while the partners (A,B,C,...N) to whom the centre provides services are presented vertically. Similarly, what distinguishes the SSC concept from all the previous designs of shared jobs (centralization of corporate functions, outsourcing, etc.) is that the centre has its own management bodies that define strategy, business and development policies, regulations, rules and standards. Literature also offers numerous papers in which authors explain the SSC concept from different aspects, however, few of them tackle the very process of SSC designing and basic components of the organizational design of SSCs. Among the latter is a co-authored paper in which the authors identify four primary components of the SSC organizational design and a group of secondary ones: (1) strategy of shared services, (2) collaborative partnership network design, (3) optimum design of service process, and (4) policy and regulation design, as chief components of the centre organizational design, and the additional component (5) other dimensions of organizational design such as leadership, scope of control, information systems and culture.[26] Strategy. The decision on forming a SSC and transferring certain processes to its competence is a strategic decision. Hence companies that decide in favour of externalization strategy simultaneously affect the strategy of the centre. Two approaches are viable in defining the shared services strategy: top to bottom and bottom up.[31] Both approaches involve business process assessment from the aspect of their importance for the organization. In the top to bottom approach, subject to assessment is the importance of corporate functions that are already recognized as common to all business entities of a complex organization. This assessment uses the technique of value chain analysis, in the sense of assessing their importance and the value they add to the organization. In conducting the value chain analysis the company may define its strategic orientation in that it will stress some shared services it will insist on in the future, for example, reduction of transaction costs, provision of better service to customers, knowledge sharing with partners in shared services, etc. The bottom up approach is implemented in the analysis of secondary (non-core) functions to identify potential benefits and risks from sharing these functions with other organizations. Choice of partner(s) and collaborative partnership network design. When they have decided in favour of outsourcing processes from the value chain, the companies establish interorganizational relations with the centre, plotting a network. On the other hand, by dislocating non-core processes, they network with the Management Journal for Theory and Practice Management 2012/64 partners they transferred these processes to. The alliance created in this manner also becomes a partner to the centre. Thus the centre becomes a point of integration of partners and also a point of coordination of their processes. Centres partners are long-term alliances. For the partnership to last longer, it is necessary that certain preconditions be satisfied: first, the partner organization performs similar secondary functions that can be integrated; second, the partner has to be aware of a potential benefits resulting from integration; third, the partner is willing to and capable of taking the risk that is present in the shared services development; and fourth, the partner has the knowledge of how to implement shared services. Optimization of shared services. A SSC is meaningful only on condition it does not grow into an unnecessary administrative burden for the partners. In order to prevent this to happen, the SSC designing process has to follow the principles of efficient organization. Two designs are crucial in this process: the workflow design and the human resource design. As well as in the process of internal organization design in which it is necessary that a balance be achieved between two fundamental but opposite requirements, division of labour and coordination, the SSC design requires that this balance should be achieved. Since this is the problem of superstructure, balance here can be achieved by workflow optimization and human resource optimization. With the implementation of WFM, workflow optimization in a SSC includes the elimination of worthless business processes, negotiations on uniform business processes, standardization of service provision processes and knowledge sharing on business process restructuring. Workflow optimization is achieved on three levels. On the level of individual partner, the workflow optimization criterion is a value added maximization. On the level of shared services, the criterion is to eliminate business process doubling. On the level of SSC, all work flows are optimized so that services are provided at lowest possible costs. For the organizations integrated into shared services human resource design becomes most important ever. SSC uses a rigorous selection method and employs people who have good knowledge of shared services. The human resource design optimization process means recruiting new people that will adopt the SSC concept promptly, that are capable and skillful in communication and team work, but also organizing numerous trainings for the purpose of improving the present employees so that they could adapt to the new environment. SSC design will also imply a potential reduction in the number of employees and lay-offs of employees who turn out to be redundant. Policy and regulation system design. The SSC management system is regulated by a statute, and so are the issues of rights, liabilities and responsibilities of both partners and the centre. The top management body of the centre is the managing board that includes directors, candidates proposed by the centre partners. The managing board of the centre appoints the director general of the centre, is in charge of finance, coordinates and controls the work of the centre. Furthermore, the centre is obliged to keep a pattern/chart of cost distribution to partners-service users, and also program and resource policies, uniform standards and ethical code. Other dimensions of SSC organizational design. Management, leadership and culture also make very important dimensions of a successful performance of SSC. The SSC is a challenge for managers that have to adopt change and a new mental matrix, which is by no means a little effort to make. Also, managers attitudes and behaviour will affect the pace at which other employees will adopt new attitudes on jobs that are allocated to another organizational unit, the extent to which they will be committed to their jobs and ready to collaborate with experts in the SSC. Instead of a routine and steady management concept implemented in the past, a flexible and differentiated approach to management is needed today, a willingness to delegate authority to others and to manage cultural differences. This becomes imperative, the more because SSCs are, as a rule, located in different national environments. Interorganizational heterogeneity has to be adopted as a set framework for a new leadership behaviour of managers. 7. SSC vs. outsourcing The SSC concept evolved in complex organizations for the purpose of providing a quality service or support to operation divisions and strategic business units via resource concentration. During the 1990s, with the expansion of business beyond national borders and with the expansion of interorganizational relations, the concept was externalized, it went beyond company limits and reached interorganizational networks. It did not come out of the thin air, it had its predecessor in the form of outsourcing. Companies, however, had already had certain experiences with outsourcing, so the SSC concept appeared to be a better solution to implement for longer-term partnerships, as stated in literature (Table 1) Management Journal for Theory and Practice Management 2012/64 Table 1: Shared services vs. Outsourcing Organizational aspects General organizational structure Strategy Shared services Networking with share services centre Long-term cost savings and knowledge sharing Outsourcing Bilateral relations Short-term cost savings Risk sharing between partners Process reengineering coordination and process standardization Reducing process doubling Knowledge sharing between partners Centralised control (uniform policies) Yes Yes Yes Yes Yes No No No No No Changes in human resources Re-development and re-training Reducing number of employees (Source: Wang S,. Wang H., Shared services beyond sourcing the back offices: Organizational design, Human Systems Management 26, 281-290, IOS Press, pp. 282, 2007.) Strategic and organizational motives High quality of services and skills, Concentration of innovation and new technologies, Risk sharing, Process standardization, Expanding and adopting good practices, Reducing organizational complexity. Table 2: Motives for forming SSC Policy motives Technical motives Economic motives Raises credibility, Solves internal conflicts, Increases control and supervision. Concentration of technological knowledge and access to projects, Low individual performances in organizations, Higher level of services, Concentration of experience, Standardization of platforms and applications, Better protection and central authorisation of information. Poor control and management of costs, Financial control skills, Cost assessment control, Economy of scope and scale, Reducing capacities and system consolidation.  (Adapted after: Janssen M., Wagenaar R., Analysis of a Shared Services Centre in E-government, Proceedings of the 37th Hawaii International Conference on System Sciences, pp. 5-6, 2004). Research has shown that service centres are constantly growing and that this type of organization of service processes becomes a choice of not only large multinational corporations, as has been the case fo far, but also of a growing number of medium-size enterprises. The concept also expanded to the non-profit sector, so that literature often offers examples of SSCs in the military, the state administration, and in the nongovernmental sectors. SSCs have distinguished themselves as a sound platform for process improving and cost reduction.[32] Their locating in the areas with competent labour force that, in addition to their expertise, know and speak foreign languages well has proven to be an excellent strategy. SSC have considerably improved business processes and thus became growth generators and a critical factor of performance of many an organization. Management Journal for Theory and Practice Management 2012/64 The results of the research in the 1999 2009 period have shown that SSC have reached a maturity phase in their life cycle and that they now expand their activities from traditional service processes (HRM, finance, IT logistics) to entirely new ones, such as supply chain, marketing, real property, legal affairs and manufacture. From single-functional centres they have grown to be multifunctional centres.[33] The trend of organizational focusing upon core business and an increasing alienation from bureaucratic organizational form helps SSCs gain in importance. The motive is not only lower costs. SSCs are increasingly perceived as drivers of innovation, entrepreneurship and development. SSCs are also the centres of knowledge, they employ the most competent experts, leaders in their respective areas, so that these centres have become the points with a high concentration of credible resources (see Table 2). Conclusion (and implications for management) The last decades have witnessed an intensification of interorganizational relations in which managers recognize a new potential for growth and development. This business strategy had to be supported by a respective organizational design. Organizational design is a mechanism of relations management. Certain new forms of interorganizational design have emerged, such as networks, groups, clusters, etc. Common to these forms is partnership with certain goals and interests. The steadiness and long duration of these relations has largely depended on the manner in which partners managed interorganizational relations. Since the mid-1990s, it has been the shared service centres (SSC) that distinguished themselves as units of IOM coordination and integration. According to the research companies (Deloitte Consulting LLP and Hitachi Consulting Corporation), experiences as regards this design of interorganizational relations have proven to be highly positive. SSCs expanded to other business sectors, state administrations, state military forces, health care, non-governmental sectors. Despite favourable experiences and insistence on advantages, literature also warns about real problems emerging in the relations between SSCs and partner-organizations. In some cases it takes a lot of time, insistence, learning, understanding and trust for SSC to be implemented. In the Serbian economy, clusters seem be the most beneficial SSC concept in partnership relations among organizations. Experiences with this form of interorganizational relations show that superficiality, improvisation and enthusiasm of an individual present to a high extent rather than professionalism. REFERENCES [1] Schermerhorn J., Hunt J., Osborn R., Organizational Behavior, John Wiley, 2005. [2] Shared Services: Making it Work at a Mid-Sized Company, Hitachi Consulting Corporation, 2007.20 [3] Bartlett C., A., Ghoshal S., Managing across Borders: New Organizational Responses, Sloan Management Review, 43, Fall 1987;Gospel H., Sako M., The unbundling of corporate functions: the evolution of shared services and outsourcing in human resource management, Industrial and Corporate Change, Advance Access published March 1, pp. 130, 2010. [4] Petković M., Aleksić Mirić A., Petrović M., Izgradnja interorganizacionih procesa u funkciji podizanja konkurentnosti: primer klastera u Srbiji, u Novi metodi menadžmenta i marketinga u podizanju konkurentnosti srpske privrede, N. Janićijević, S Lovreta redaktori, Ekonomski fakultet Univerzitet u Beogradu, Ekonomski fakultet Subotica Univerzitet u Novom Sadu, Naučno društvo ekonomista Srbije, Beograd, decembar 2011. [5] Porter, M., Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press, 1985. [6] Popović N., Jaško O., Prokić S, Menadžment interorganizacionih odnosa, Outsorcing, strateške alijanse, merdžeri i akvizicije, Fond Srpski ekonomski centar, Beograd, i Institut ekonomskih nauka, Beograd, 2010. [7] Joel, M. Podolny and Karen L. Page, Network forms of organization, Rev. Sociol., 24:57-76,1998. [8] Aleksić Mirić A., Organizaciono učenje i transfer znanja u strategijskim alijansama: perspektiva organizacionog dizajna, doktorska disertacija, Ekonomski fakultet, 2010. [9] Delgado, M., Porter M., Scott S., Clusters and Enrepreneurship, Electronic copy available at: , 2010. [10] Petković, M., Daničić, D., Efikasnom organizacijom do konkurentnosti kompanija u Srbiji, Reforme i ekonomski razvoj u tranziciji, Srbija i Zapadni Balkan, NDE i Ekonomski fakultet, 2011. Management Journal for Theory and Practice Management 2012/64 [11] Petković M., Aleksić Mirić A., Petrović M., Interorganisational Relations, Organisational Performance and Cluster Success: The Case of Automotive Cluster of Serbia, From Global Crisis to Economic Growth. Which Way to Take?, Ekonomski fakultet, Univerzitet u Beogradu, 2012. [12] Jones, G., Organizational Theory, Design and Change, New York: Addison Wesley, 2004. [13] O Reilly, C., Tushman, M.L.. The Ambidexterous organization, Harvard Business Review, May, 2009. [14] Petković M., Orelj A., Two strong organizational hands to bring innovation out, Symorg Symposium, FON, Zlatibor, June 2012. [15] On network forms see in detail in Miles R., Snow C., (1995) The New Network Firms: A Spherical Structure Built an a Human Investment Philosophy, Organizational Dynamics, Summer; Miles R., Snow C. (1992) Causes of Failure in Network Organizations, California Management Review, Summer. [16] Global Shared Services Survey Results, Executive Summary, Deloitte Consulting LLP, March 2011. [17] Gospel H., Sako M., The unbundling of corporate functions: the evolution of shared services and outsourcing in human resource management, Industrial and Corporate Change, Advance Access published March 1, pp. 130, 2010. [18] Teece, D. J., Dynamic Capabilities and Strategic Management, Oxford University Press: Oxford, 2009. [19] Chandler, A. D., The Visible Hand: The Managerial Revolution in American Business, Harvard Univer sity Press: Cambridge, MA, 1977. [20] Snow C., Miles R., Coleman H., Managing 21st Century Network Organizations, Organizational Dy namics, Vol 20, Issue 3, Winter, 1992. [21] Zeitlin, J. Industrial districts and regional clusters, in G. Jones and J. Zeitlin (eds), The Oxford Hand book of Business History. Oxford University Press: Oxford, pp. 219243, 2007. [22] Handy, C., Trust and the Virtual Organization, Harvard Business Review, May-Jun, 1995. [23] Gold, M., Campbell, A., Strategies and Styles, Basil Blackwell, Ltd., Oxford, 1990. [24] Janssen, M., Wagenaar, R., Analysis of a Shared Services Centre in E-government, Proceedings of the 37th Hawaii International Conference on System Sciences-2004. [25] Weick, K.E., Organization design: organization as self-designing systems, Organizational Dynamics 6, No 2, 30-46, 1977. [26] Wang, S., Wang, H., Shared services beyond sourcing the back offices: Organizational design, Human Systems Management 26, 281-290, 2007. [27] See in detail in Toni Hupp, Designing Work Groups, Jobs and Work Flow, Pfeiffer & Company, ISBN 0 7879-0063-X, i WMC, Workflow management Coalition, 2007, , October 1, 2007. [28] Basu, A., Kumar, A., Research Commentary: Work(cid:0)ow Management Issues in e-Business, 2002, [29] For example, the employee has no authority to approve himself the travelling expenses, but the emplyee who executed the sales of certain products will be in charge of resolving potential claims regarding that product. [30] Rison, R., How the reduce the cost of HR and continue to provide value, Human Resource Planning 28 (1), 14-17, 2005. [31] Porter, M., Millar, V., How information gives you competitive advantage, Harvard Businsss Review 63 (4), 1985; Toni Hupp, Designing Work Groups, Jobs and Work Flow, Pfeiffer&Company, ISBN 0-7879-0063X), i WMC, Workflow management Coalition, 2007, October1,2007). [32] Deloitte Consulting LLP, Global Shared Services Survey Results, Executive Summary, March 2011. [33] Strikwerda, H., Seesing, A., Shared service centers: conditions and critical success factors, Annual, 2004, Receieved: June 2012. Accepted: September 2012. Management Journal for Theory and Practice Management 2012/64 About the Author Mirjana Petković 1Faculty of Economics, Belgrade, mirjana.ekof@beotel.net Mirjana Petković, Ph.D., is professor at the Faculty of Economics at the Belgrade University (the courses of Enterprise Organization and Human Resource Management). She is the author of Organizational Behaviour with Human Resource Management. She is also the author and co-author of several monographs and numerous articles in the fields of organizational theory, organizational structure, organizational behavior, organizational design, culture and changes; and took part in many projects as a consultant or project manager. Snežana Lazarević College of Sports and Health, Belgrade snezanalazarevic@vss.edu. Mr.Snežana Lazarević, master of ecc. is a lecturer in the course Human Resource Management in Sport and assistant director at the College of Sports and Health in Belgrade. She is the author of a number of articles in the field of management in sports. Her doctoral dissertation The role of work teams in the development of a learning organization is due to be defended by the end of this year at the Faculty of Organizational Sciences in Belgrade. 2012/64 Management Journal for Theory and Practice Management 2012/64 Petar Jovanović, Vladeta Čolić, Vojislav Đorđević, Ana Mitić Project Management College, Belgrade Implementation of Project Management in Managing Organizational Projects UDC: 005.8 ; 005.7 DOI: 10.7595/management.fon.2012.0017 This paper presents the possibilities of project management application in managing organizational projects. The specific methodology for managing business projects which can be used for other types of projects such as IT, consulting, marketing projects etc. is used. The possibilities of application of methodology for managing business projects in practical situations are shown on the case of the project of a manufacturing firm restructuring. Keywords: project, management, organization, implementation 1. Introduction The development of project management and emergence of new management disciplines and concepts are primarily based on the fact that this discipline can be effectively implemented in every area of human life and work. Project management is effectively used in the execution of large scale investment and military projects as well as in organizational, information, manufacturing, consultant and other projects. Detailed research and analyses conducted for the purpose of defining specific characteristics of certain types of projects and a better implementation of project management which in turn produced different classifications of projects that can now be found in respective literature [4, 5, 7]. One simple classification distinguishes among three basic groups of projects: Investment projects; Business projects; Social projects [1]. Each of the listed groups of projects has its specific characteristics that require adequate methodologies for managing the execution of this particular group of projects. Analyses have shown the major characteristics of the above listed groups of projects relevant for forming an adequate procedure or methodology. For example, the major characteristics of investment projects are the following: these projects are long-term and complex projects, they involve a large number of organizations and individuals, they use large quantities of various resources, the execution costs are high and the preparation for the execution is significantly shorter than the execution itself. On the basis of the characteristics defined, the YUPMA methodology for investment project management is devised and has been extensively implemented in managing large investment projects in this country. There are a number of different project management methodologies in this country and worldwide, used in different types of projects with different characteristics. The best known among them are: PMI methodology, IPMA Competence Baseline, APM methodology, the European Commission Project Cycle Management, PRINCE 2, etc. [2, 5]. In addition to these foreign methodologies, the above mentioned YUPMA methodology is used in this country for managing investment projects, and also specific management methodologies for business and social projects are developed and used [1, 2]. Management Journal for Theory and Practice Management 2012/64 2. Investment project management methodology The analysis of investment projects reveals that these are complex and long-term projects whose execution requires management in order that their realization should be effective. Hence the project management concept is well implemented in the management of investment projects where the effects of the implementation of such a concept are clearly defined and significantly powerful. It is in this sense that the YUPMA methodology for investment project management is used, based on the fundamental principles of management and project management and taking into acount the major characteristics of investment projects as regards duration, complexity, recource consumption, etc. YUPMA methodology is, together with setting the respective project management organization and the necessary computer support, defined and shown via the analysis of the basic phases of the general management process, and these are as follows: execution planning, execution monitoring and execution control [1]. Then follows the analysis of the elements of the execution of every investment project that is to be planned, monitored and controlled and a detailed definition of the potentials and methods of planning, monitoring and control of the project execution timeline, the resources consumed by the project and the project execution costs. Hence this concept of investment project management includes three basic modules time management, resource management and project execution cost management. By planning, monitoring and the control of time, resources and costs of project execution the fundamental goals of investment project execution management are achieved completion of the project in the planned time and within planned costs [1]. YUPMA methodology is developed on the basis of the general principles of project management and the practical implementation of project management software packages in the management of the complex investment project execution. The most frequently used software packages, Primavera and Microsoft Project, allow for a separate treatment of time, resources and costs of a project, namely, a strict and direct planning and monitoring of the time of the project execution, and then planning, levelling and tracking the resources consumed, and also planning, monitoring and actualization of the investment project execution costs. These three elements time, resources and costs are essential in an efficient management of investment project execution. YUPMA methodology for investment project management can be described via the elaboration of the global phases of the project cycle presented below [2]. 1. Project definition 1.1. Proposal and scope of project 1.2. Goal definition 1.3. Defining the project management organization 1.4. Project structuring 2. Project planning 2.1. Defining the project planning and control systems 2.2. Planning project execution time 2.3. Resource planning and levelling 2.4. Planning project execution costs 2.5. Defining operations planning and project execution monitoring systems 3. Project execution tracking and control 3.1. Tracking and control of project execution time 3.2. Tracking and control of resources consumed 3.3. Tracking and control of project execution costs 3.4. Reporting on project execution progress 3.5. Reporting on delays and defining corrective actions 3.6. Actualization of plans 4. Project closing 4.1. Summing project results 4.2. Project closing 4.3. Lessons learnt [2]. Management Journal for Theory and Practice Management 2012/64 In practice, the above methodology needs to be adjusted to each individual project, also taking into account the software package applied. This especially goes for the operations planning and project execution monitoring systems, as well as for the system of reporting on project execution. 3. Business project management methodology A detailed analysis of the basic characteristics of investment and business projects reveals significant differences between these two types of projects. These differences require that a specific methodology be devised to be implemented in business project management, different from that implemented in managing the investment project execution. Clearly, business projects, as defined above, vary in types and characteristics, therefore it is possible to define only the basic procedure of business project management which would be further elaborated depending on the specific characteristics of the project under consideration. In order to define the methodology of project management implementation in managing business projects as easily as possible, it is necessary to start from a general approach to project management applied in investment project execution management. The methodology of implementation of the basic concept of project management applied in investment project execution management is based on the implementation of the fundamental postulates of project management and a respective standard software package for project management. This methodology is complex, which is absolutely logical given the complexity and duration of investment projects. Since business projects are considerably less complex and shorter-termed, the methodology for managing such projects can be considerably simpler applying a respective software package [1, 2]. The following discussion will present two approaches in the business project management methodology, namely, two business project management methodologies. One is based on the use of an adequately defined life cycle of the business project and tracks and guides the project through the life cycle phases up to its completion [1, 8, 9]. Business project management methodology can be viewed through the basic phases of the project life cycle, and these are the following [9, 10]: Devising project proposal; Project planning; Project implementation; Project closing. The business project management methodology is defined via the elaboration of the listed phases of the project life cycle, using adequately defined formulae or lists that allow for taking more efficient steps in the project management process. Using the WBS technique, the activities in a given phase required to be accomplished in order that the project should be realized are defined, and this is done for each project phase. This is followed by allocating the required resources equipment, materials and personnel employed in the execution of individual phases and of the project as a whole. Also allocated are the required financial resources, that is, the budget for the project execution. Thus a strategic plan of the project execution is obtained, later to be developed in detail, primarily from the aspect of delegating responsibilities for accomplishing individual activities, of appointing the persons in charge of execution of individual activities, of defining the time span for the accomplishment of the activities and the planned deadline by which these activities are to be completed [9, 10]. The other approach to business project management is based on investment project management methodology especially developed and adjusted for this purpose. Given the characteristics of business projects and the differences of these projects in comparison with the investment ones, the investment project management methodology can be relieved of all the phases characteristic of investment projects and an adequate business project management methodology can be thus designed. Such a methodology can include the following generalised phases (after 1, modified): Management Journal for Theory and Practice Management 2012/64 1. Project goal and description; 2. Appointment of project manager; 3. Project team assembling; 4. Planning project execution time; 5. Planning necessary resources and funds; 6. Defining responsibilities for execution of project activities; 7. Monitoring the execution and necessary interventions; 8. Reporting on project execution; 9. Project closing and lessons learnt. The above described methodology represents one global approach that can be used for a number of business projects, among them: introducing information system, opening new markets, restructuring project, organization of a meeting, advertising campaign project, etc. In case of a concrete project, the project phases can be defined more accurately, taking into account, as mentioned above, the most important tasks to be accomplished in the course of project execution. This is a somewhat different approach in comparison to that of a project life cycle, which basically has a structure of the project itself and the project execution according to that structure [1]. 4. Social project management methodology The analysis of various project classifications revealed a need to define a specific methodology for managing social projects. Without any further analysis of the characteristics of social projects and having in mind the business project management methodology described above, below is given a short description of a possible methodology for managing social projects. The methodology involves the following phases (after 1, modified): 1. Project and project goal definition; 2. Appointment of project manager; 3. Definition of project phases and activities; 4. Delegation of activities responsibility matrix; 5. Defining the time of activities and the overall project timeline; 6. Allocation of required resources and costs; 7. Accomplishment of activities; 8. Monitoring the execution and corrective actions; 9. Project closing summing results. The presented social project management methodology does not differ significantly from the business project management methodology since the differences in characteristics are not too big. On the other hand, the general approach to project management implementation makes it necessary that certain phases or activities important for all types of projects and indispensable in an efficient project management should be included into every concept or methodology of project management implementation. Generally, the same software packages are also used (Primavera and Microsoft Project) that provide adequate support in the project execution regardless of the project type. 5. An example of project management in firm restructuring To illustrate the possibility of implementation of the above described methodology, a simple case of a firm restructuring project or introduction of organizational change into a small manufacturing firm will be presented. This project, i.e., its structure obtained using the WBS technique, is composed of the following global phases: 1. Planning organizational change (restructuring); 2. Analysis and diagnosing of the current state of affairs; 3. Designing new organization; 4. Introducing new organization; 5. Sustaining new organization [1]. Management Journal for Theory and Practice Management 2012/64 Assuming that the project manager is appointed and the project team appropriate to such an organizational project is assembled, the procedure in methodology implementation requires that these global phases be further divided into individual activities to be accomplished in order that the project should be realized: 1. Planning organizational change 1.1 Analysis of environment and of environmental changes; 1.2 Identification of environmental changes; 1.3 Analysis of needs for change in the firm; 2. Analysis and diagnosing of the current state of affairs; 2.1 Insight into the current state of affairs in the organization of the firm; 2.2 Analysis of the current state of affairs in the organization of the firm; 2.3 Assessment of the current state of affairs in the organization of the firm; 2.4 Identification of necessary changes in the organization of the firm; 3. Designing new organization 3.1 Examining the available knowledge; 3.2 Analysis of the solutions existing in practice; 3.3 Defining alternative organizational solutions; 3.4 Selecting the best organizational solution; 4. Introducing new organization 4.1 Presentation and explanation of the new firm organization; 4.2 Adopting the new firm organization; 4.3 Provision of necessary organization documentation; 4.4 Recruiting personnel for the new organization; 5. Sustaining new organization [1, 2]. As pointed out above, the implementation of the methodology for an efficient realization of this project requires that a project manager and a project team be appointed that will work on the execution and the management of the execution of the project. In addition to the project manager who has to be an expert in the area of organization and project management, the project team for such projects may include 3-5 experts from different fields of expertise (organizer, economist, information technology expert, etc.). The procedure in planning the project realization requires that the time necessary for the completion of each of the phases and individual activities and the creation of a global and a detailed time plans be defined, most frequently using the gantogram. Figure 1 presents an example of a global gantogram for the above mentioned firm restructuring project. The time periods necessary for the completion of each phase are given on the basis of experience from similar projects realised in practice [1]. Upon the completion of the global plan a detailed elaboration of the project is made and a detailed execution plan is devised, by activities. Then follows the delegation of activities among individual team members, i.e., defining which team member is responsible for which activities, using a respective responsibility chart. Figure 1 Management Journal for Theory and Practice Management 2012/64 In case the project team consisting of a project manager and four experts from respective fields (ecconomist, organizers 1 and 2, information expert) is formed, the responsibility chart can look like the one presented in Figure 2. This is followed by an analysis that involves the definition of possible risk events for each project phase (activity) as well as defining the strategy for acting (response) in case these risk events occur. Then the necessary material resources and financial assests are allocated in accordance with the defined time plan, which is also written in the respective documents. Project title Project number RESPONSIBILITY CHART No. Phase (activity) title Performer of activity 1.1. Environment analysis 1.2. Identification of change in environment 1.3. Analysis of needs for change in the firm 2.1. 2.2. 2.3. 2.4. Insight into the current state of affairs in the firm organization Analysis of the current state of affairs in the firm organization Assessment of the current state of affairs in the firm organization Identification of necessary changes in the organization of the firm 3.1. Examining available knowledge 3.2. Analysis of the existing solutions from practice 3.3. Defining alternative organizational solutions 3.4. Selection of the best organizational solution Economist Economist Organizer1 Organizer 2 Information expert Organizer 1 Information expert Organizers1and 2 Information expert All All Organizers 1and 2 All All 4.1. Presentation and explaining the new organization of the firm All 4.2. Adopting new organization of the firm 4.3. Provision of necessary organizational documentation 4.4. Recruiting personnel for the new organization 5. Sustaining new organization Organizational bodies Organizers1 and 2 Organizational bodies Organizational bodies All  Figure 2. Responsibility chart The risk analysis is conducted for each phase or each activity separately. The example presented below shows two characteristic activities and a simple analysis conducted for them is shown as a risk analysis chart (Figure 3). No. Possible risk events No significant change in environment is identified Poor diagnosis of the current state Impact (H, M, S) Likelihood of occurence (H, M, S) H H M M Figure 3. Risk analysis 1 Risk event response strategy Conduct new analysis of environment Include external experts Management Journal for Theory and Practice Management 2012/64 This completes the process of project planning and preparation for execution and the project execution, namely, of activities given in the detailed project execution plan. The project team together with the project manager are engaged in the execution of certain activities according to the time plan and the responsibility chart. The project manager is responsible for the completion of all the listed activities and he is involved, together with the individuals in charge, in the execution of each individual activity. Through a system of previously scheduled meetings they monitor and control the execution of each individual activity and reduce possible deviations from the plan. The operational monitoring and control of the project execution is conducted on a permanent basis in accordance with the time plan and the responsibility chart. Monitoring is primarily the responsibility of the project manager and then of the entire project team. Monitoring is performed on a permanent basis and at the meetings held daily the project team members report to the project manager about the state of the project, about the progress made and about possible problems and delays. Together they define measures and activities to be undertaken immediately to solve problems and eliminate delays. This process lasts until the completion of the project when activities are taken to close the project. Conclusion The paper describes the business project management methodology adequate for managing the execution of organizational, information, marketing, consultant and other similar projects. The methodology is devised with respect to both the basic principles of project management and the investment project management methodology that is also described in the paper. In forming the business project management methodology the basic principles related to management processes of planning, monitoring and control of time, resources and costs of realization are observed, as well as the most important characteristics of busines projects in terms of size, complexity, duration, etc. The methodology has proven to be effective in practice and this is documented by a concrete case of a manufacturing firm restructuring project. The example presents the basic phases of the methodology and the method of their implementation in concrete situations. Special attention is paid, and this is also stressed in the above case, to the fact that the implementation of organizational project management methodology is rather easy and effective and hence is the best choice for a large number of users. Analysing the effects of the implementation of project management in managing the execution of various types of projects allows for a conclusion to be drawn that project management helps save the time required for project execution, as well as resources and costs in the project execution. In case of organizational projects, it can be maintained on the basis of the experience in the execution of similar projects that the implementation of project management methodology may shorten the time consumed in the execution of the project under consideration by around 15% and also reduce the costs of the project execution by 10% to 15%. REFERENCES [1] Jovanović P.: Upravljanje projektom, VŠPM, Beograd, 2010. [2] Jovanović P., Jovanović F.: YUPMA metodologija za upravljanje projektima, XIII International Project Man agement Symposium - YUPMA 2009, Zlatibor, 2009. [3] Jovanović P.: Upravljanje investicijama, Fakultet organizacionih nauka, Beograd, 2006. [4] Lock D.: Project Management, Gower Publishing Limited, England, 2007. [5] A Guide to the Project Management Body of Knowledge, PMBOK® Guide Fourth Edition, Project Man agement Institute, Pennsylvania, USA, 2008. [6] Gareis R.: Handbook of Management by Projects, Manz, Viena, 1990. [7] Gareis R.: Happy projects, MANZ, Verlag, 2005. [8] ICB IPMA Competence Baseline, Version 3.0, International Project Management Association, Nijkerk, 2006. [9] Andre Philip van der Merwe: Business Development: A Project Management Approach, IV International Project Management Symposium: Project Management in Yugoslavia at the Beginning of the New Millenium, YUPMA 2000, Zlatibor, 2000. Management Journal for Theory and Practice Management 2012/64 [10] Andre Philip van der Merwe: Project Management Business Development: Integrating Strategy, Structure, Processes and Projects, V International Project Management Symposium: Project Management New Trends, YUPMA 2001, Zlatibor, 2001. [11] Jovanović P., Mihić M., Petrović D., Social Implications of Managing Project Stakeholders, Social Implications and Challenges of e-Business. (ed. Feng Li). Information Science Reference, Hershey, USA, ISBN 978-759904105-6, 2007. [12] Grundy T., Brown L.: StrategicProject Management, Second Edition, The Jossey-Bass, 2002. [13] Calamel L.,Defelix C., Picq T., Retour D., Inter-organisational projects in French innovation clusters: The construction of collaboration, International Journal of Project Management, Volume 30, Issue 1, 2012. Receieved: March 2012. Accepted: September 2012. About the Author Petar Jovanović Project Management College, Belgrade petarj@fon.bg.ac.rs Prof. dr Jovanović Petar has a masters degree in Mechanical Engineering and a PhD at the Faculty of Organizational Sciences in Belgrade. He is Chair of the Department of Management and Head of the investment management Centre FON. He is the founder and editor in chief of the international journal Management for. The author of over 40 books and monographs and over 180 scientific papers published in reputable international and national journals and conferences. Ana Mitić Project Management College, Belgrade anamitic@live.com Mr Ana Mitić graduated from the Faculty of Philosophy in Sociology. She was elected for a lecturer in Pm College in management and project management in 2012. She worked as a teaching assistant at the Faculty of Agriculture in Belgrade. She has participated in many scientific conferences and published a book and several papers in the field of management and project management. Vladeta Čolić Project Management College, Belgrade vcolic@eunet.rs Prof. dr Vladeta Čolić graduated from the Faculty of Transport in Belgrade, and a Ph.D. in Mechanical Engineering in Belgrade. He is full professor at Belgrade University since 1990. year. He was Dean of the Faculty of Transportation and Vice-Chancellor of the University of Belgrade. He has written a number of books and monographs in the river shipping and water transport, organization of port organization and management of organizations and project management. He has published many scientific papers in national and international journals and scientific conferences. Vojislav Đorđević Project Management College, Belgrade djordje.voja@gmail.com Prof. dr Vojislav (cid:0)orđević graduated and received his doctorate at the Military Academy in the field of military science, methodology and decision-making. He was elected for an associate professor at the Military Academy in Belgrade in 2005. in the field of management and decision-making. He has published several books and research papers in the areas of management, decision making and project management. He participated in many scientific conferences of national and international importance. 2012/64 Management Journal for Theory and Practice Management 2012/64 Laura Juznik Rotar, Mitja Kozar 1Higher School of Business and Management Novo mesto 2Gorenje d.d. Exploring the Mechanisms for Implementing a Risk Management Process: Overall Approach and Practical Example UDC: 005.52:005.334]:004.032.26 ; 005.521 DOI: 10.7595/management.fon.2012.0023 XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia The aim of this paper is to explore the mechanisms for implementing a risk management process into an organisation. A way of exploring the mechanisms for implementing a risk management process is to break it down into its component parts and examine what each part should contribute to the overall risk management process. The main aim of the empirical part of the paper is on the other hand to present empirical research of risk management focusing on forecasting sales using a neural network method. A neural network is a powerful data modeling tool that is able to capture and represent complex input/output relationships. Integrating an overall risk management process into an organisation can significantly improve the response of the organisation to unplanned events (good or bad) and enhances its ability to compete, not to mention that the objectives of an organisation are easier to achieve and that resources areeffectively allocated. Applying neural network method produces consistently accurate sales forecast. However, effort should be put in proper preparation of dataset. This paper has a tremendous added value for all risk management officers, CFOs and all others involved in risk management process. The added value is shown in the description of theoretical risk management model which is upgraded with a practical approach example. Keywords: enterprise risk management, strategical risk management, operational risk management, risk management process, organisation, neural network, forecasting 1. Introduction Risk is inescapable in business activity. Economic activity by definition commits present resources to an uncertain future. The one thing that is certain about the future is its uncertainty, its risks. Hence, to take the risks is the essence of economic activity. Nearly all operational tasks and processes are now viewed through the prism of risk (Chapman, 2011). Risk has become shorthand for any corporate activity. It is believed that it not possible to create a business that does not take risks. The end result of successful strategic direction setting must be capacity to take a greater risk, because this is the only way to improve entrepreneurial performance. Organisations that are more risk conscious have for a long time known that actively managing risk and opportunity provides them with a decisive competitive advantage. Taking and managing risk is the essence of business survival and growth. Enterprise risk management is a response to the sense of inadequacy in using a silo-based approach to manage increasingly interdependent risks. Enterprise risk management is about understanding the interdependencies between the risks, how the materialisation of a risk in one business area may increase the impact of risks in another business area (see for example Duckert, 2011; Moeller, 2011; Monahan, 2008). Under enterprise risk management all risk areas should function as parts of an integrated, strategic and enterprisewide system. While risk management is coordinated with senior-level oversight, employees at all levels of the organisation using enterprise risk management are encouraged to view risk management as an integral and ongoing part of their jobs (Fraser and Simkins, 2010). Management Journal for Theory and Practice Management 2012/64 Early empirical work on enterprise risk management investigated why companies adopted enterprise risk management and most studies utilized survey data. The first study by Colquitt, Hoyt and Lee (1999) investigated the characteristics and extent of integrated risk management. They found that political risk, exchange rate risk and interest rate risk were the three most common nonoperational risks handled by the risk management department. Other early work on enterprise risk management included a focus on the determinants of enterprise risk management. Liebenberg and Hoyt (2003) compared firms that appointed a chief risk officer to a matched sample. They found that firms that appoint a chief risk officer are more likely to be financially leveraged. Similar study can be found in Pagach and Warr (2008). More recent work on enterprise risk management has examined additional determinants of enterprise risk management adoption (see for example Desender, 2007; Beasley, Pagach and Warr, 2008). The earlier studies moved beyond the enterprise risk management adoption question and examined the aspects of whether enterprise risk management adds value. Gates, Nicolas and Walker (2009) extend the early work by examining the value seen inside the company as measured by better decision making and increased profitability. Without a shadow of doubt, businesses nowadays operate in an entirely different environment compared with just a few years ago. The adoption of expansion strategies, such as investment in emerging markets, developing significant new products, acquisition, organisational restructuring can all increase an organisations risk exposure. The main aim of risk management process, as seen as one part of the structure of enterprise risk management, is to ensure that organisation is able to respond to unplanned events (good or bad) and rises its ability to compete. The process is successful when enough scenarios are prepared to capture as many different risks as possible and the way how to handle it. In the first stage, the goal of risk management process and people included in such a process is to incorporate risks and different scenarios in business and strategic planning of organisation and at the same time to provide the top management with information on current business environment. The aim of this paper is to explore the mechanisms for implementing a risk management process into an organisation. A way of exploring the mechanisms for implementing a risk management process is to break it down into its component parts and examine what each part should contribute to the overall risk management process. The main aim of the empirical part of the paper is on the other hand to present empirical research of risk management focusing on forecasting sales using a neural network method. The paper is structured as follows. The introduction is followed by an overview of the risk management process where the proposed stages of the process are described in detail. It is followed by an empirical example of risk management applying neural network method. The paper concludes with a short summary of the main findings. 2. the risk management process A way of exploring the mechanisms for implementing a risk management process is to break it down into its component parts and examine what each part should contribute to the overall risk management process. It is proposed here that the risk management process is broken down into the following stages: organisation, methodology, setting the sources of risk, keeping the process up to date. While activities follow a largely sequential pattern, it may be an iterative process over time. For example, as new risks are identified the earlier processes of identification and analysis are revisited and the subsequent processes are repeated through to the implementation of risk response action. The proposed stages are described in detail below. 2.1 Organisation The risk management process represents strategically important process which can in certain situations act as a framework for changes in business decisions. That is why the process functioning is connected with the top management directly (usually it operates under the chief financial officer) and what is more, the flow of information is provided to the highest levels of organisation. Management Journal for Theory and Practice Management 2012/64 On the other hand it is important that identification of operational risks is suitably managed and that adequate controls are available to regulate the risk management process. In such a manner a completely newly identified or changed risks should be managed as soon as possible. To be able to ensure that, the roles and responsibilities in the risk management process have to be clearly defined. The board of directors (top management) at the top level is empowered with the authority to confirm and directly track the risk management process, whereas the subordinate body consisting of key process representatives is given the authority to ensure the efficiency and effectiveness of the process functioning. At the operational level there is an ongoing risk management process as a composite part of current processes and represents a mindset of each and every employee. Operational identification, assessment and management is implemented by system trail, which is fundamental for trend analysis of constant risk management process improvements over the time period. 2.2 Methodology The methodology which is usually implemented in risk evaluation is based on interaction between the likelihood of risk and consequences that might the risk impose to the business process or to organisation as a whole. When we try to define the probability, it is important to take into consideration the history of a certain event as well as the estimated frequency of such an event (for example the event occurs on each xs repeated process). According to the mutual influence of both risk parameters, it is presented as a product of numerically estimated levels. Risk management strategy is defined according to the obtained results and represents a framework for setting certain actions and the deadline by which the actions have to be taken. A set of actions is implemented periodically (determining the activities, deadlines and decision makers) and is known as risk treatment plan. On the level of a business group unified risk management is especially a great challenge in the area of providing the compatibility of methodologies. For certain areas, more sophisticated methodologies are used, whereas the results of such methodologies have to be adjusted in accordance, logically complementary of an overall risk assessment. 2.3 Setting the sources of risk A way of setting the sources of risk is to consider that risk emanates from two primary areas (see figure 1): from within the organisation itself (labelled as internal risk) and from the environment or context within which the organisation operates and over which it has no control (labelled as external risk). Such classification shows the relationship with the international risk standard ISO 31000 respectively. What is more, setting the sources of risk in the overall process is as much important as the proper use and suitably chosen optimisation method for risk evaluation. The value of a risk management process is reduced without a clear understanding of the sources of risk and how they should be responded to. It is expected that the sources of risk should be carefully examined not to forget any and included into a catalog of risk. The catalog of risk consists of a set of predetermined risks where each is described with additional parameters needed to properly estimate the risk. Management Journal for Theory and Practice Management 2012/64 Internal risk Internal financial control / Internal audit Fraud exposure Historical liabilities Investment Capex decisions Liquidity and cashflow Financial risk External risk Risk of accounting standards Interest rate risk Currency risk Credit risk Infrastructure risk Internal risk Personnel risk (new employees) Risk of proper qualifications and competencies Health risk and safety at work Working environment risk Computer /IT systems risk External risk Communication risk Distribution risk Suppliers/contractors risk Terrorism Natural catastrophe Epidemics Internal risk Brand and name expansion Structure of a board Control of environment Internal risk Mergers and acquisitions risk Research and development risk Intellectual property risk Contractual risk Reputation and goodwill risk External risk Product recalls risk Social responsibility risk Public image risk Legal risk Competition risk (unfair) Market risk External risk Economic risk Technological development risk Competition risk on the market Demand risk and users needs risk on the market Legal and market needs risk Figure 1: Setting the sources of risk Risks that are monitored during the risk management process represent the set of risk. It is written and evaluated in the catalog of risk which has to be kept up to date by the whole team which is devoted to risk management process in the organisation. It should not be forgotten to harmonize the set of risk with business needs as well as with operational functioning of business processes. 2.4 Keeping the process up to date Keeping the risk management process up to date is the most important factor especially in the area of risk management, which has the impact on efficiency, effectiveness and quality of the overall risk management process. At the highest level it is reflected in the appropriateness of the risk management process to the business objectives. Within such process the period of checking the up to date process depends on the objectives considered. Business objectives are connected with the strategy and vision of an organisation (organisations risk) and they do change regarding the branch of industry and long-term objectives of an organisation. For the set of risk and method to evaluate risk we can take an assumption that they are rarely changed, whereas in the case of major changes on the level of organisations performance they change. These changes are mostly faced when expanding to new business activities or branches of industry, which can be related with acquisitions of new companies, business expansion onto different political-economic zones or when changing critical business partners. Keeping the risk management process up to date is on one hand dynamic, on the other hand simplified taking into consideration project management or project oriented work where goals and risk are defined by establishing the project or in the stage of preparing project elaborate. Risk here is short to medium-term as in most cases risk is terminated by the project duration (when objective goals of a project are accomplished), partly it is transferred to the subject of a project - usually this is a process (when we want to accomplish earmarked goals of a project). Management Journal for Theory and Practice Management 2012/64 Process risks are the most operational connected risks as they are connected with the process goals as well as with the resources needed for process functioning. The set of risks can be mapped from earmarked project goals in the case of process that is a consequence of previously implemented project, on the other hand the process set of risk partly indicates the transfer of risks that are connected with the strategy and vision, as requests of vision as well as of strategy are delegated to the process level. Keeping the risk management process up to date is inevitably directly connected with setting the goals no matter the level where they are determined and tracked. When goals change, it is always necessary to conduct an audit of risk management process, above all it is necessary to check the catalog of risk and set of controls and measures which are established to manage the risk. Besides ensuring the suitability of risk management process it is also necessary to take into consideration the influences of external world when conducting risk management. Mostly we deal with process controls performed by external auditors and process consistency with valid standards and recommendations which are valid for the branch of industry and in general in the area of risk management. If the risk management process is to be up to date we need to regularly supervise the controls and measures whose role is to manage the risk. This is done by checking whether the planned risk response actions have been implemented or whether the potential opportunities have been examined and results obtained and to what extent the intensity of controls is used. 3. Empirical example of risk management Our empirical example of risk management focuses on forecasting sales using a rich database provided by a company which is a leading manufacturer of home appliances. The motivation for choosing the sales forecasting area is that this area is becoming more important in everyday business, not to mention risks involved here (for example economic downturns, changing trends and fashions, increased competition, manufacturer recalls). Sales forecasting is a crucial part of the financial planning of a business. Good forecasting models can increase efficiency of businesses, they are saving money on excess inventory, increase profit and serve its customers better. There are several methods that can produce consistently accurate sales forecasts. One of them is neural network which we apply in empirical research. A neural network is a powerful data modeling tool that is able to capture and represent complex input/output relationships. The motivation for the development of neural network technology stemmed from the desire to develop an artificial system that could perform intelligent tasks similar to those performed by the human brain. Neural networks resemble the human brain in the following two ways: 1. A neural network acquires knowledge through learning. 2. A neural networks knowledge is stored within inter-neuron connection strengths known as synaptic weights. The true power and advantage of neural networks lies in their ability to represent both linear and non-linear relationships and in their ability to learn these relationships directly from the data being modeled. Traditional linear models are simply inadequate when it comes to modeling data that contains non-linear characteristics. The most common neural network model is the multilayer perceptron (MLP). This type of neural network is known as a supervised network because it requires a desired output in order to learn. The goal of this type of network is to create a model that correctly maps the input to the output using historical data so that the model can then be used to produce the output when the desired output is unknown (cited from NeuroSolutions.com). 3.1 Data and variables Proper preparation of dataset is the most important and with no doubt the most time-consuming step in working with neural networks. It is very important to have the right amount of data. Too much data may increase training time of a neural network and even deteriorate network performance. If we have a dataset with Management Journal for Theory and Practice Management 2012/64 a small number of cases, then the neural network will not have enough information about the problem to train correctly. Our dataset, which is based on historical data on sales, contains 1995 cases. From our primary dataset we also removed data with missing values and detected outliers. We have also carefully chosen the variables that should best represent the problem that we want to analyze. In order to include such variables we firstly performed multiple regression analysis to see which variables statistically significantly influence our dependent variable (that is sales). From table 1 we can see that such variables are brand name and type of product. Other variables (such as month of sales) did not perform statistical significant influence on our dependent variable and were therefore excluded from analysis. Since both independent variables are categorical, we also pay attention that categories for both variables are well presented in different combination to ensure that neural network will be able to find the differences and that the results will be valid and reliable. Table 1: Statistically significant coefficients Model Unstandardized Coefficients Standardized Coefficients (Constant) brand type B 32.202 2.480 -.048 Std. Error 1.281 .099 .014 Beta .221 -.029 t 25.142 25.169 -3.348 Sig. .000 .000 .001 3.2 Empirical application 3.2.1 Analysis In this step the data is partitioned onto training, test and validation set. The training set is a part of input dataset used for neural network training, i.e. for adjustment of network weights. The validation set is a part of dataset used to tune network topology or network parameters other than weights. The statistical program itself retain the best network (the network with the lowest error on validation set). Whereas the test set is a part of input dataset used only to test how well the neural network will perform on new data. The test set is used after the network is ready (trained), to test what errors will occur during future network application. This set is not used during training and thus can be considered as consisting of new data entered by the user for the neural network application. The partition of data can be done manually or automatically by statistical program. Our dataset is partitioned as follows: 68% for training set; 16% for validation set and 16% for test set. 3.2.2 Preprocessing Preprocessing transforms the data to make it suitable for neural network. For example, scaling numeric values and transforming text values into numeric ones. It has to be mentioned that neural networks work only with numeric data. Numeric columns are automatically scaled during data preprocessing. For input columns (in our case brand name and type of product) scaling range is [-1...1]. For the target column (in our case sales) scaling range depends on activation function of the output layer: linear output layer activation function (scaling range -1...1); logistic (sigmoid) output layer activation function (scaling range 0...1); hyperbolic tangent output layer activation function (scaling range -1...1); softmax output layer activation function (scaling range 0...1). In table 2 there are some details of the preprocessing stage. Variable Type of product Brand name Sales Table 2: Variable details of the preprocessing stage Column type Input Input Output Format Numerical Numerical Numerical Scaling range Scaling factor [-1..1] [-1..1] [0..1] 0.068966 0.083333 0.003226 Management Journal for Theory and Practice Management 2012/64 3.2.3 Design This step helps us to design the most efficient neural network architecture. If we want to design a network. we have to specify the network architecture (number of hidden layers and units in each layer) and network properties (error and activation function). A network with too few hidden units only roughly discovers hidden dependencies in the data whereby the network produces a significant number of errors. A network with too many hidden units will tend to memorize all the data instead of finding relations that also lead to bigger network errors. We have chosen a topology with one hidden layer and with one hidden unit. The neural network architecture most efficient for our case was 2-2-1. Whereas activation functions for hidden layers are (see for example Haykin. 1998; McNeil. Frey and Embrechts. 2011): Linear: this function produces its input as its output or in other words. just passes the activation level di rectly as the output. Its output range is [-inf..inf]. Logistic: this function has a sigmoid curve and is calculated using the following formula: F(x) = 1/ (1+e x). Its output range is [0..1]. This function is used most often and was selected also in our case. Hyperbolic tangent: this function also has a sigmoid curve and is calculated using the following formula: F(x) = (ex - e-x)/ (ex + e-x). Its output range is [-1..1]. Empirically. it is often found that this function performs better than the logistic function. 3.2.4 Training To train the network we selected back propagation training algorithm which is the most popular algorithm for training of multilayer perceptron. However there are some drawbacks such as slow convergence. we need to tune up the learning rate and momentum parameters. Figure 2: The dataset errors graph In figure 2 the dataset errors graph plots the average absolute dataset error vs. iteration on training and/or validation sets. Because we deal with regression problem. we can see from the graph how the absolute error is reduced from iteration to iteration. Management Journal for Theory and Practice Management 2012/64 3.2.5 Testing Network testing is performed after training completion. Testing can help us to analyze performance of the trained network. In accordance with the regression situation in our case we have two indications of quality of trained network: absolute error (AE) and absolute relative error (ARE). the difference between the actual value of the target column and the corresponding network output. The difference is displayed in absolute values and in percentage terms. In our case the AE is 32.052541. whereas the ARE is 6.135216. 3.2.6 Query In this step we can query the trained network either by enterinf the query manually. loading the file or by selecting records from the loaded dataset. From the figure 3 we can see that our trained network performs well as the output lies not far away from the confidence limits (which are calculated using the average absolute error on the test set). Figure 3: Confidence limits for the output Management Journal for Theory and Practice Management 2012/64 Conclusion The risk management process represents strategically important process which can in certain situations act as a framework for changes in business decisions. That is why the process functioning is connected with the top management directly (usually it operates under the chief financial officer) and what is more. the flow of information is provided to the highest levels of organisation. The main aim of this paper is to explore the mechanisms for implementing a risk management process into an organisation. It is proposed that the risk management process is broken down into the following stages: organisation. methodology. setting the sources of risk. keeping the process up to date. Whereas in the empirical part of the paper the proposed theoretical model is upgraded with a practical approach example focusing on forecasting sales using a neural network method. The paper contributes to the better understanding of the risk management process as well as to the implementing different quantitative methods at different stages of risk management process. It also contributes to the relatively thin literature in the field of risk management process and empirical application of different quantitative methods into the process. REFERENCES [1] Beasley. M.. Pagach. D. & R. Warr (2008). Information Conveyed in Hiring Announcements of Senior Executives Overseeing Enterprise-wide Risk Management Processes. Journal of Accounting. Auditing and Finance. 23(3). 311-332. [2] Chapman. R.J. (2011). Simple Tools and Techniques for Enterprise Risk Management (2nd ed.). Hobo ken. New Jersey: Wiley&Sons. [3] Colquitt. L.. Hoyt. R.E. & R.B. Lee (1999). Integrated Risk Management and the Role of the Risk Man ager. Risk Management and Insurance Review. 2. 43-61. [4] Desender. K.A. (2007). The Influence of Board Composition on enterprise Risk Management Imple mentation. Working Paper. [5] Duckert. G.H. (2011). Practical Enterprise Risk Management. A Business Process Approach. Hoboken. New Jersey: Wiley&Sons. [6] Fraser. J. & B.J. Simkins (2010). Enterprise Risk Management. Todays Leading Research and Best Practices for Tomorrows Executives. Hoboken. New Jersey: Wiley&Sons. [7] Gates. S.. Nicolas. J.L. & P.L . Walker (2009). Perceived Value of enterprise Risk Management. Univer sity of Virginia Working Paper. [8] Haykin. S. (1998). Neural Networks: A Comprehensive Foundation (2nd ed.). London: Prentice Hall. [9] Lam. J. (2003). Enterprise Risk Management. From Incentives to Controls. Hoboken. New Jersey: Wiley&Sons. [10] Liebenberg. A. & R. Hoyt (2003). The Determinants of Enterprise Risk Management : Evidence from the Appointment of Chief Risk Officers. Risk Management and Insurance Review. 6(1). 37-52. [11] McNeil. A.J.. Frey. R. & P. Embrechts (2005). Quantitative Risk Management. London: Princeton Uni versity Press. [12] Moeller. R.R. (2011). Coso Enterprise Risk Management (2nd ed.). Establishing Effective Governance. Risk. and Compliance Processes. Hoboken. New Jersey: Wiley&Sons. [13] Monahan. G. (2008). Enterprise Risk Management. A Methodology for Achieving Strategic Objectives. Hoboken. New Jersey: Wiley&Sons. [14] Pagach. D. & R. Warr (2008). The Characteristics of Firms that Hire Chief Risk Officers. North Carolina State University Working Paper. Receieved: April 2012. Accepted: September 2012. Management Journal for Theory and Practice Management 2012/64 About the Author Laura Južnik Rotar Higher School of Business and Management Novo mesto laura_juznik@yahoo.com Dr. Laura Južnik Rotar received her PhD degree from the Faculty of Economics, University of Ljubljana in 2009. Currently she is a senior lecturer at the Higher School of Business and Management Novo mesto where she teaches economics and business subjects. She has been involved in several research projects. Mitja Kozar 2Gorenje d.d. mitja.kozar@gorenje.com Mitja Kozar graduated from the Faculty of Commercial and Business Sciences in Celje. He has 15 years of work experience, which he gained in the private and public sectors. His areas of research interest are information technology, project management, performance management, knowledge management, decision making in management. Currently he is a leading ICT manager at Gorenje, d.d. 2012/64 Management Journal for Theory and Practice Management 2012/64 Elena Veselinova, Marija Gogova Samonikov Faculty of Economics, Goce Delcev University, Stip, Macedonia SMEs Inovation and Growth in EU UDC: 005.591.61 ; 005.52:330.322(4-672EU) DOI: 10.7595/management.fon.2012.0022 XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia The focus of this paper is the analysis of the most important factors for SMEs performance, survival and growth in EU. The main objective is to consider what determines the potential failure of young companies to innovate and grow.The importance for new, young and thus often still small firms to introduce innovations and grow is commonly claimed. Therefore, factors that would inhibit these small, young companies to achieve their goals can have a huge public impact.The research results show that the age of the firm (which reflects its reputation) is important to the degree to which the firm feels financially constrained. Also, finance barriers can be associated with the market failure. Risk and informational asymmetries create capital market imperfections and a firms lack of reputation and collateral become crucial elements. Conclusions reveal that the ability of SMEs to grow depends highly on their potential to invest in restructuring, innovation and qualification. All of these investments require capital and therefore access to finance. Recent policy initiatives aim at improving the financial environment for European entrepreneurial activity and, more specifically, at supporting newly-founded innovative firms in order to increase their global competitiveness and spur innovation. Keywords: SMEs, financing, innovation, growth. 1. Introduction We are living a period of financial and economic crisis. It is accompanied by widespread pessimism and lack of confidence and trust. Under these circumstances the focus on long-run growth and innovation may appear out of place. This paper is an argument against such a perspective. It is important to take a long run perspective precisely in moments of crisis and turmoil.From the earliest period on record up to the eighteenth century, the standards of living have been quite stable over a long run. Sharp variations in standards of living were associated with disease, famine and war. Nevertheless, they would not persist over a very long run. The Malthus / Ricardo model was able to reconcile long-run stable standards of living with technological progress over time (Lucas, 2002). The engine of growth is a capitalist society based on competition and change. Joseph Schumpeter characterizes economic development as: The spontaneous and discontinuous change […] which forever disturbs the equilibrium state that previously existed. The Nobel Prize winner Robert Solow showed that for a sustained economic growth technological progress is more important than factor accumulation. For Schumpeter, behind innovation (i.e. the economic application of technological improvements) lies entrepreneurship. Innovation involves the industrial or commercial use of something new: new goods or service, a new production method, a new market or source of supply, a new form of organization or a new method of financial organization. For Schumpeter, innovation is fraught with difficulties. One of them stems from the need for external financing (Levine, 2005). 2. A schumpeterian look at the growth performance of the EU After a long period of technological catch-up since the WWII, the productivity gap between Europe and the US began widening again in 1995. Structural conditions necessary for Europe to catch-up with the productivity leader, the US, were present from the end of the war to the first oil shock and afterwards. However, conditions needed for creation, innovation and leadership in a knowledge economy worked against Europe (relative to the US). Management Journal for Theory and Practice Management 2012/64 The recovery of the US productivity growth in the post-1995 period, and the corresponding decline in the EU reflects the influence of key technology and policy factors. Below are discussed three interrelated determinants: ICT (information and communication technology), innovation and firm dynamics. 2.1 The role of ICT as a general purposein EU productivity growth Sectoral data suggest that the divergence in productivity growth between the US and the EU in the post-1995 period is primarily explained by differences in the pattern of production and use of ICT.  Labour productivity growth in ICT producing manufacturing industries has been particularly high in both the US and the EU. However, the US benefited from a leading initial position and an increasing growth in the post-1995 period in high-tech industries such as office machinery, electronic valves & tubes, telecom equipment, TVs, and scientific instruments.  ICT using services have been the focus of the most profound technological gap with the US, particularly in the retail and wholesale sectors and in banking and finance. On the other hand, more restrictive regulatory barriers in European countries have been detrimental to the diffusion of ICT. More recent firm level evidence (Bloom, 2007) confirms that the US productivity advantage is not only related to a higher ICT spending by US firms (in ICT using sectors), but US firms as well as their subsidiaries operating outside the US-specific conditions reap a higher return from their ICT investments. This suggests that other firm-specific advantages are important, such as the quality of management practices. 2.2 The importance of knowledge production and diffusion In the present context, we need to define the extent to which the example of ICT is an isolated case or is likely to be replicated in other high-growth, high-tech industries. This is a pertinent question if one accepts that the USs lead in ICT is not an isolated case. Assuming that a failure of EU enterprises to recapture the full potential and benefits related to ICT is a credible risk, the following key questions arise: 1. Does the EU have specific problems regarding its innovation infrastructure?; 2. Does the US have specific features/framework conditions which make it more likely to be the locus for the next future breakthroughs in technology?; 3. Why is the EU less apt to creating and exploiting new technologies in general? In order to better understand the EUUS innovation deficit, discussion beyond ICT importance is needed. Figure 1: EUs overall innovation performance relative to the US Source: EIS 2006. Management Journal for Theory and Practice Management 2012/64 Despite some signs of catching-up, Figure 1 confirms the presence of persistent innovation deficit in the EU. As this innovation indicator comprises several innovation input and output measures, the EU innovation gap goes beyond the deficit in R&D spending. The R&D deficit is a symptom rather than a cause of a weakness in the EUs capacity to innovate; the cause is rooted in the structure and dynamics of industry and enterprise (OSullivan, 2007). A comparison of innovation inputs shows that SMEs represent a larger share of R&D expenditures in the EU than in the US and Japan. On the other hand, EU SMEs are less R&D intensive than in the US, although the SME gap is similar to the overall gap in R&D spending. The average R&D intensity of SMEs in Europe is 0.34% versus 0.53% in the US. This compares to an overall average R&D intensity in Europe of 1.17% versus 1.57% in the US (Results are based on DG RTD, 2007). However, specific contribution of SMEs to innovation goes beyond the share of SMEs in R&D expenditures or in innovation output. SMEs have a very important indirect effect. Usually young small innovating firms create radically new technologies and markets, whose further developments are completed by large players. Baumol (2002) recognizes the complementarity between small and large firms, but at the same time notes the importance of small firms in large innovations. In 1994 the Small Business Administration Office of Advocacy prepared a list of breakthrough innovations made by small firms during the 20th century. It is impressive, going literally from A (airplane) to Z (zipper) with many innovations that have been crucial to the economy. Other studies on the distribution of innovations certified as significant by industry experts, confirmed that small (as well as large) firms outperform medium-sized firms for the US (see OECD (2006) for an overview). According to Baumol, the private sector innovations in the US come from two distinct sources, firstly, from the activities of large firms and secondly, from the efforts of independent inventors and their entrepreneurial partners. Baumol asserts that the active presence of both groups enhances the overall innovation process since their activities are complementary. Independent inventors/entrepreneurs specialise in breakthrough innovations while R&D departments of the larger firms enhance these breakthroughs and add to their overall usefulness. 2.3 Firm demography and the creative destruction process in Europe EU-US productivity growth differences can be additionally explained by (a change in) the firms demography. The churning process has substantial effects on labour productivity growth because a large part of it results from reallocations from less productive to more productive firms. Industries and/or countries where the churning process is inhibited, exhibit lower productivity and employment rates. All European industries exhibit a greater number of small firms and also a higher share in total employment than in the US. American manufacturing firms are larger and they display wider size dispersion, particularly in high-tech sectors and in wholesale and retail. Figure 2 on aggregate entry, exit and net entry rates from the research work of Cincera and Galgau (2005) shows that although both entry and exit rates are lower in the EU than in the US, the differences in exit rates are substantially larger. The average size of entrants is much smaller in the US. Lower entry as well as lower exit (firing) costs in the US allow benefitting from the experimentation process supplied by the market. While there is a high positive correlation between the entry and exit in the US, the correlation is insignificant in the EU and even negative in France, Italy and Portugal. A positive correlation reflects churning of firms within sectors as part of the creative destruction process. A negative correlation reflects more traditional sectoral shocks (positive for entry, negative for exit). Management Journal for Theory and Practice Management 2012/64 Figure 2: Aggregate entry, exit and net entry rates (in %) by country (19972003) Source: M. Cincera andO. Galgau (2005), Impact of Market Entry and Exit on EU Productivity Growth Performance, EC Economic Papers p. 222 Post entry performance also differs between Europe and the US as shown in Figure 3: net employment gains amongst surviving firms at different limits, from the empirical research of Bartelsman et al. (2004). The shortterm survival rate (2 years) for American entrants is very low, but after this market experimentation period, the conditional survival rate of successful firms becomes high. In addition, the growth for firms that survive for 7 years is higher in the US than in Europe. These results are a clear indicator that there are also higher barriers to growth for SMEs in Europe. Figure 3: Net employment gains among surviving firms at different lifetimes (net gains as a ratio of initial employment) Source: Excerpt from Bartelsman et al. (2004). 2.4 The impact of the creative process on productivity growth The overall labour productivity growth originates mainly from the growth of incumbent firms, both in the US and the European manufacturing sector. However, the EU-US differential growth performance can be explained by the reallocation effect between firms and the net entry component. This seems to be a clear indicator that creative destruction process is less effective in European countries than in the US in both low and high tech industries.  The exit effectis always positive, both in the US and the EU, which means that exiting firms are the least productive firms. Management Journal for Theory and Practice Management 2012/64  The long-run effect of entry on aggregate manufacturing productivity growth has a smaller magnitude in the EU than in the US. Furthermore, the effect of entry depends on the industrys distance to the technology frontier. The positive effect of entry on productivity growth is more significant the closer a country or sector is to the technological frontier.  In high-tech sectors, the entry effect is positive in all countries and this suggests an important role for new firms in more technology intensive industries. In these industries, the entry effect is much stronger in the US than in the European countries. Similar observations apply to exit barriers.  New and small firms contribute to aggregate productivity growth directly through their own growth performance, and indirectly by affecting the growth of large incumbents. Thus, the US firms post-entry growth and productivity performance is higher. Moreover, beneficial interactions between small and large firms, especially in sectors where technical ideas and innovations are an important ingredient of growth, could be at the heart of different effects that entry has on aggregate productivity growth. In summary, Europes growth gap results partly from an inappropriate industrial structure in which small and new firms, occupying the main part of total employment, fail to play a significant role in the dynamics of the industry, especially in the high-tech intensive sectors. This is illustrated by their inability to enter, but most importantly, for the most efficient innovative entrants, to grow. The churning that characterizes the creative destruction process in a knowledge based economy encounters significant obstacles in the EU, suggesting barriers to growth for small innovating firms which ultimately weakens Europes growth potential. Economic analysis suggests the following problem drivers for the insufficient exit and low post-entry growth:  weaker product market competition (e.g. barriers to cross-border trade in services, national regulations, etc);  protection of inefficient firms through subsidies, bail-outs, etc.;  labour market and other regulations that kick in when a firm grows beyond a certain size threshold;  financial market developments. 3. Financing of small and young innovative companies The literature generally supports the importance of new, young and therefore often still small firms for innovations and growth, even if they are small in number. Therefore, factors that would inhibit these small, young companies to innovate and grow can have a huge public impact. In the analysis of the (failing) contribution of small and young firms to innovation and growth, access to finance is a priority issue. Survey data for the EU confirm the importance of access to finance. Excessively high economic risks are the major hampering factors for innovation for all types of firms, but somewhat more for small than for large firms. A second tier of barriers is formed by the access to skills, which again impedes both small as well as large firms. Regulatory burden is also included in the second tier of barriers. The empirical evidence suggests that this burden is somewhat stronger for small firms. Table 1: Proportion of enterprises that regard selected hampering factors as highly important (% of all enterprises); by size class Source: Eurostat (2004). Management Journal for Theory and Practice Management 2012/64 The analysis of survey data on firms financial constraints perceptions show that the age of the firm, which reflects its reputation, is more important than its size in determining the degree to which the firm feels financially constrained. A possible interpretation of this result is that age might reflect reputation of the firm which, in turn, significantly affects access to finance. The access to finance barrier can be associated with the market failure. Risk and informational asymmetries create capital market imperfections, and a firms lack of reputation and collateral become crucial elements. Existing literature demonstrates substantial differences between small and large firms in this respect. Hall (2005) shows that imperfections in capital markets usually affect small firms more than large ones which can rely on internal financing. Young firms are even more likely to be constrained than other small firms as reputation and collateral are important to mitigate capital market imperfections. More radical investment projects further exacerbate the imperfect, incomplete and asymmetric information problem. Thus, young innovative companies, which combine the disadvantages of a small scale, a short history, less retained earnings and more risky innovative projects, are even more likely to be financially constrained than other small, young and/or innovating firms. Along with this financial market failure, particular for the EU, stands the highly fragmented nature of its venture capital market with 27 different operating environments adversely affecting both fund raising and investing. Complexity in operating across borders means that some funds have difficulties in expanding, growing and reaching a critical mass. This makes access to financing even more difficult and more expensive in the EU. 3.1 Characterizing YICs Young Innovative Companies (YICs) are defined in the EU State Aid Rules as small enterprises, less than 6 years old, being certified by external experts on the basis of a business plan as capable of developing products or processes which are technologically new or substantially improved and which carry a risk of technological or commercial failure, or have R&D intensity of at least 15% in the last three years or currently (for start-ups).The YIC dummy takes a value of 1 if an innovation active company is less than 6 years old, has fewer than 250 employees and spends at least 15% of its revenues on R&D. Out of the sample of 1342 German innovation-active companies (A research done by the Catholic University of Leuven, 2006), only 51 companies qualify for YIC status, using the EU State Aid definition.This confirms the rareness of YICs, representing only 3.8% of all innovation-active companies in West-Germany in 2006. Even within the group of small innovators or young innovators, YICs are rare (4.3% and 24%,respectively). A typical YIC has a micro size, with about 20 employees. This is considerably smaller than other innovating SMEs, as well as young innovators. Also on R&D intensity and basicness of its R&D profile, a typical YIC scores much higher than any of these reference categories. This statistics confirms that it is a combination of age, size and R&D profile that composes the particularity of YICs. YICs are not the same as innovative SMEs or young innovators. Finally, YICs are overrepresented in knowledge-intensive, technological sectors, specifically services (ICT and R&D engineering) while they are absent in more traditional manufacturing industries. 3.2 YICs and barriers to innovation Table 2 presents the results on whether YICs perceive differently obstacles to innovation. Respondents were asked to give a score to each (potential) hampering factor on a scale going from zero (not relevant) to three (high).The first column indicates the share of firms that considered this factor to be relevant (i.e. firms that scored one or more), while the second column reports the mean score. Management Journal for Theory and Practice Management 2012/64 Table 2: Obstacles to innovation Source: Schneider and Veugelers (2008) As expected, YICs face, on average, higher obstacles to innovation than other innovating firms. When comparing across barriers, results confirm the presumption that financial constraints (both internal and external) are the most important barriers to innovation for YICs. Although this ranking also holds for other innovating firms, the YIC-differential is the largest and highly statistically significant on both financial constraints.The evidence presented by Schneider and Veugelers (2008) shows that young innovative companies, combining newness, smallness and high R&D intensity are rare in the sample of innovative firms. They view financial constraints, both internal and external, as an important factor hampering their innovation activities, significantly more so than other innovation-active firms. Conclusion We have argued that innovation is an important determinant of competitiveness and important to address global challenges, such as sustainable development.The importance of innovation has been reinforced by a fast development of new technologies (ICTs in particular), which enabled new forms of competition and opened new markets for creation of innovative products. Nevertheless, despite the importance of innovation, as well as new opportunities offered by globalisation and new technologies, improvement in productivity in the EU, the EU seems to be lagging behind the US in this area. We try to document the importance of SMEs and young innovative companies (YICs) for the innovation process. Both of them are source of dynamism and, in particular, YICs are directly related with research activities and are a key component of the innovation system, facilitating the emergence of new products and markets. However, evidence shows that in Europe small and new firms fail to play a significant role in the dynamics of the industry, although they account for a majority of employment. Not only do they face significant entry barriers, but also successful entrants face difficulties to grow. However, the ability of SMEs to grow depends highly on their potential to invest in restructuring, innovation and qualification. All of these investments require capital and therefore access to finance. Recent policy initiatives, such as the creation of the YICs status at the European level, aim at improving the financial environment for European entrepreneurial activity and, more specifically, at supporting newly-founded innovative firms in order to increase their global competitiveness and spur innovation. Empirical research on access to finance for SMEs and young innovative companies has been limited, however, a recent analysis confirms the presumption that young, small, innovation-intensive firms are a very small but distinct segment in the group of innovative companies. Furthermore, access to finance is the most important factor that hampers YICs innovation activities, significantly more than other innovating firms. Management Journal for Theory and Practice Management 2012/64 REFERENCES [1] Aghion, P., and P.H(2005), Appropriate Growth Policy: A Unifying Framework, Harvard University. [2] Baumol, W. (2002), The Free-Market Innovation Machine: Analyzing the Growth. Miracle of Capitalism, Princeton, Princeton University Press. [3] Bloom, N. and (cid:0).R. (2007), Measuring and Explaining Management Practices Across Firms and Countries, Centre for Economic Performance Discussion, Paper N° 716, forthcoming in Quarterly Journal of Economics. [4] Cincera, M. andO.G. (2005), Impact of Market Entry and Exit on EU Productivity and Growth Performance, European Economy, Economic Papers N° 222. [5] European Commission, Directorate General for Economic and Financial Affairs. [6] European Commission, BEPA (2008), Innovation and Growth in the EU: The Role of SME Policy, European Commission. [7] Eurostat, Innovation in Europe, CIS3 results, 2004. [8] Gordon, R. (2004), Two centuries of Economic Growth: Europe Chasing the American Frontier?, CEPR Discussion Paper N° 4415. [9] Hall, B.H. (2005), The Financing of Innovation, in Shane, S.Blackwell Handbook of Technology and Innovation Management, Oxford: Blackwell Publishers Ltd., 2005. [10] Lucas, R. (2002), Lectures on Economic Growth, Harvard University Press. [11] OSullivan, M. (2007), The EUs R&D Deficit & Innovation Policy, European Commission. [12] Schumpeter, J. (1934), The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle, Transaction Publishers (14th printing 2008). Receieved: April 2012. Accepted: September 2012. About the Author Elena Veselinova Faculty of Economics, Goce Delcev University, Stip, Macedonia elena.veselinova@ugd.edu.mk Elena Veselinova, MSc., graduated from the Faculty of Economics, University of St Cyril and Methodius, Skopje, Macedonia in the field of management. She completed the postgraduate studies at the Faculty of Economics, University of St Cyril and Methodius - Skopje at the study program of MBA - management. Elena Veselinova is now a PhD candidate at the Faculty of Economics, University of St Cyril and Methodius Skopje and works at the Faculty of Economics, University Goce Delchev- Stip, Macedonia as assistant at the Department of management. Marija Gogova Samonikov Faculty of Economics, Goce Delcev University, Stip, Macedonia marija.gogova@ugd.edu.mk Marija Gogova Samonikov, MSc., graduated from the Faculty of Economics, University of St Cyril and Methodius, Skopje, Macedonia in the field of marketing. She completed her postgraduate studies at the Faculty of Economics, University of St Cyril and Methodius - Skopje at the study program of monetary economics. Marija Gogova Samonikov is now a PhD candidate at the Faculty of Economics, University of St Cyril and Methodius Skopje and works at the Faculty of Economics, University Goce Delchev- Stip, Macedonia as assistant at the Department of finance. 